The U.S. Bankruptcy Court for the Southern District of Texas is requiring Meridian Capital International Fund to explain its relationship to Buccaneer Energy Ltd.
The court has issued subpoenas to Meridian Capital International Fund, its affiliate Meridian Capital CIS Fund, Meridian managing director Askar Alshinbayev and Meridian general counsel Paul Merchand to appear for depositions in late July to explain how Meridian is related to AIX Energy LLC, the largest secured lender of Buccaneer.
The Australian independent Buccaneer and its eight subsidiaries filed for bankruptcy protection this May, after operating in the Cook Inlet basin for more than four years.
The court order came after a group of unsecured Buccaneer creditors asked for more time to investigate the proceedings before a hearing on a proposed auction of Buccaneer assets.
Specifically, the Official Committee of Unsecured Creditors wants more information about the relationship between Meridian Capital International Fund, which owns the largest equity interest in Buccaneer, and AIX Energy, the largest lender to Buccaneer.
The court-appointed official committee of unsecured creditors is composed of five large lenders to Buccaneer: Kenai Offshore Ventures LLC, Archer Drilling LLC, Teras Oilfield Support Ltd., Frank’s International LLC and AIMM Technologies Inc. Their claims and concerns grow from an initial discovery phase of the case, which produced more than 400,000 pages of documents through July 8, according to the committee.
Meridian declined to participate in the discovery unless ordered by the court, according to the committee. Upon request from the committee, the court has made such an order.
Controlling assetsThe committee claims Meridian is using AIX Energy to control Buccaneer assets.
In mid-2013, Meridian International acquired a 19.9 percent equity stake in Buccaneer Energy Ltd., making it the only entity with more than 10 percent interest in the company, according to Buccaneer. The large stake gave Meridian a seat on the Buccaneer board of directors and made the company “actively involved” in daily operations of the company, according to the committee. The acquisition occurred shortly before Buccaneer shareholders voted to oust two existing directors and appoint three new directors nominated by two large institutional investors, which effectively split the board in half.
Meridian International affiliate Meridian Capital CIS Fund was a secured lender for Buccaneer until April 30, 2014, when it transferred its loans to AIX Energy LLC, according to the committee. AIX is currently the stalking-horse bidder for the proposed auction, having agreed to make an initial bid of at least $58,476,264.71 to buy “substantially all” of Buccaneer’s assets, which include leases across the Cook Inlet basin. A stalking-horse bidder prevents a seller from being underbid during an auction.
Around the time Meridian acquired its interest Buccaneer, the two companies entered a “production payment agreement,” where Meridian gave Buccaneer $1 million and Buccaneer subsequently paid Meridian $4.7 million less than six months later using funds generated from the sale of the Cosmopolitan prospect, according to the committee.
In January 2014, Meridian took over a Victory Park Management LLC debt facility to Buccaneer using proceeds from the sale of Buccaneer assets, including Cosmopolitan, according to the committee. At the time, Buccaneer described the switch to Meridian Capital CIS as being “on amended terms that are more favorable to Buccaneer.”
But, according to the committee, before closing on the Victory Park deal, Meridian “was investigating foreclosure upon the debtors’ assets with the goal of owning and controlling the subject assets free from the debtors’ obligations to other creditors and investors.”
Buccaneer traded on the Australian stock exchange, and under Australian securities law, Meridian could not purchase those Buccaneer assets without approval of other Buccaneer shareholders. “In order to accomplish indirectly what it could not do directly, Meridian installed AIX - a newly formed shell entity comprised of individual oil and gas operators with whom Meridian had long-standing prior personal relationships - as a ‘straw-man’ lender to foreclose the debtors’ assets,” according to the committee.
On April 30, 2014, AIX Energy used a “mirror loan” from Meridian to buy the loan to Buccaneer from Meridian, according to the committee, which called the transaction “little more than a book entry” and called AIX “no more than an economic pass-through.”
According to the committee, the procedures Buccaneer has proposed for the auction were designed to restore Meridian as the secured lender over the Buccaneer assets, which would allow Meridian to replace Buccaneer management at the expense of other lenders.
Other depositionsPreviously, the committee also served subpoenas to three Buccaneer directors.
Given that the directors - Allen Stein, Gavin Wilson and Patrick O’Connor - all live overseas, Buccaneer is asking the court for permission to conduct the depositions by videoconference. Counting travel time from England and Australia, recovery from jet lag and preparation, each deposition would require a weeklong commitment, Buccaneer said.
The committee wants the depositions to take place in Houston.