WAV has no right to use vessels belonging to STG – Chad Griffin

CHAD GRIFFIN was in 2017 appointed the liquidator of Sea Trucks Group Limited, an oil and gas services firm. Griffin is a partner in FTI Consulting, a global business advisory firm, and is a specialist in restructuring and insolvency work. In this interview with FRANK UZUEGBUNAM, editor, Businessday West Africa Energy Intelligence, Griffin takes us through the controversies, intricate and interwoven relationship between Sea Trucks Group and West African Ventures and its possible impact on how Nigeria is perceived out there. Excerpts:

How did you first get involve with Sea Trucks Group?

I first got involved with Sea Trucks Group (STG) in May 2017 when the bondholders’ lawyers contacted me because there was a real issue in discussions between Sea Trucks, the bondholders owed money by Sea Trucks, Jacobus Roomans and West African Ventures (WAV). At that time, independent directors had been appointed over Sea Trucks and had been attempting to improve corporate governance and put in place an arms-length arrangement between Sea Trucks and WAV. Their relationship had deteriorated and there was a very real fear that actions would be taken, which were not in Sea Trucks’ creditors’ interest.

My role was to protect the assets of STG, Sea Trucks’ parent company, from interference by Roomans, because there was a fear that the independent directors were going to be replaced by Roomans, rewinding some of the perceived improvements that have been made.

I entered was appointed a liquidator on June 12, 2017 by the British Virgin Island (BVI) Court because BVI was the jurisdiction of incorporation for STG.

What is the relationship between WAV and STG?

Historically, WAV operated STG’s vessels by bare boat charters. For many years that worked fine. STG was owned by Roomans and WAV was also owned by him. So, it was the left hand talking to the right hand. When the bond was raised, that was just for STG, it was not for WAV. So, there was a situation where $575 million was borrowed by STG, and WAV operated the vessels under charters, with WAV acknowledging the rights of the bondholders over the vessels, when they granted them certain powers of attorney.

When we talk about corporate governance, we are talking about things like vessels being moved from STG to WAV, cash being moved from STG to WAV and cash being moved the other way around; lack of appropriate control and ring-fencing, which led to the desire by bondholders to start recognizing that there are different interests. So, there were creditors on one side and WAV with no debt on the other side and you needed to have normal arm length arrangements in order to protect the interests of STG’s creditors. That could have been entirely possible if WAV have been willing to pay for the vessels and there could have been harmony. Unfortunately, they did not do that. We have not received a single dollar since the liquidation. It has been 15 months; the vessels have been in Nigeria and many of them being operated and we have not received a single dollar.

There is evidence of poor corporate governance and poor practices. This led to a lack of accountability for the assets of Sea Trucks. The worst of that was the ship building project where the price of the ship was inflated to $90 million as a consequence of a “consultancy” cost. We know from the evidence reviewed that there was no such consultancy service provided. We have a job to recover that money as well.

The current situation is that all those bare boat charters between STG and WAV have been terminated. We have really no contractual relationship between Sea Trucks and WAV any longer that would allow WAV to continue to use the vessels; the vessels are registered and belong to STG, and are mostly mortgaged to the bondholders, but WAV physically has control of them. We have demanded they be returned, in accordance with the terms of the charters, but WAV has refused.

There is now no relationship that allows WAV to use these vessels, in the midst of the current legal fight to recover the properties

The relationship falls into three phases: before when things were good; then when things started turning bad because of the economy and the oil price crash and when Sea Trucks’ creditors made clear their desire to regularise arrangements, and then when that proved impossible, the current situation where contractual relationships have been terminated and WAV do not have the right to use the vessels.

For me, it is a bit intricate trying to understand this relationship. Roomans owns both WAV and STG?

You are right, it is a bit complex. Just to make it more complicated, his STG shares were moved into a Trust and his family members are beneficiaries of the Trust as I understand it. So, it is not him personally, it is the Trust to all intent and purpose.

What really went wrong?

The main reason was probably the drop in oil price. It was difficult for everyone in the industry. I have worked on the restructuring of many oil and gas companies, offshore marine companies, DSV, OSV, CSV, you name it. Most of them borrowed money at the top of the market and when the oil price dropped, they pretty much owed too much debt, which meant that most of them had to be restructured.

In these cases, the debt was restructured; the debt was pushed out, in some cases the debt was reduced, and the companies continued to operate. That probably should have happened here, but the reason it did not in my view was because of actions taken by Roomans such as ignoring contracts and matters such as legal ownership of assets, and ignoring bondholder security over Sea Trucks cash, and increasingly taking hostile action in his own personal interest and not the interests of creditors and bondholders.

And that led to the unfortunate event of liquidation and points to why I think a restructuring did not happen. I think the starting point was probably a general market phenomenon but then in this particular case, the reason there has not been restructuring in a better way is because of Roomans personal actions and the resulting break down in trust with the bondholders.

You mentioned that some of these problems arose because of the dip in oil prices but we are heading to $100 once again.

Yes, and that is the sad thing. Now we have a situation where the oil prices are recovering. Nigeria has a lot of developmental opportunities. There is work for these vessels. The IOCs and other users of these vessels are hesitant in many cases about using them because we are telling them that they should not, because WAV has no right to use the vessels.

So, they are probably going elsewhere and hiring different vessels. Not all of them, though. Some of them may continue to take the vessels but there is a huge missed opportunity because of the situation of fighting and uncertainty brought about by the litigation which WAV started. I think that is a huge missed opportunity. We have seen that already with contracts that were awarded several years ago that should have been gearing up to start, they are being retendered.

We have written to Nigerian Content Development and Monitoring Board (NCDMB) asking them to investigate WAV’s continued non‐compliance with the Nigerian Oil and Gas Industry Content Development Act 2010 particularly its declarations of ownership of OOIM Vessels to NCDMB and its unlawful detention of the OOIM Vessels after the termination (and/or expiry) of the bareboat charterparty agreements (BBCAs).

I am also aware that the management of Nigerian Maritime Administration & Safety Agency (NIMASA) recently authorized the revocation/withdrawal of the renewed certificate of Nigerian registry (Bareboat Chartered) issued to WAV in respect of those vessels. For us, that is significant progress.

What has been happening to the revenue accruing from the operation of those vessels?

Well, the beneficiary of those revenues has been WAV. We should have received payment for the hire of the vessels but we have not received anything. I think what we should have been paid from bareboat charters should be about $50 plus million dollars a year. But since they have not acknowledged that they owe us the money, we asked for the vessels back.

What is stopping STG from getting hold of the vessels?

We need to use legal means. We need to go through proper process. We are substantially a long way on that journey. We have proven beyond doubt that STG does in fact own the vessels. We have proven that and two arbitrations that took place in London in accordance with the terms of contract between WAV and STG, have confirmed it. But WAV is appealing, as they do not like the verdicts. So, we are waiting for the final court hearings although this can take a long time.

WAV in one of its advertorials said that they have paid for the vessels through cash collection?

Yes, I have heard that argument. As return of the vessels continues to be the subject of litigation, you will appreciate that I cannot comment on these assertions in detail, but I have looked into that. Is true that when STG and WAV worked collaboratively that they both received payments from contracts taking place in Nigeria; the US dollar revenue would go to one of the STG companies, and the local currency would go to WAV. In trying to talk about the cash collections, you also need to think about the payments made to cover costs. The US dollar payments were paid by STG while the local currency payments were paid by WAV.

So, whilst it is quite a complicated situation when you take account of both collections and payments together, what is the net position? The simplest way of looking at this is; what do the accounts, the audited accounts, of WAV show? If you look at WAV audited accounts which reflect both payments and collections, it is simple; WAV owes Sea trucks over $100 million dollars, and that was before the liquidation. So, that would be significantly higher now. So, the cash pooling argument unfortunately does not hold, quite apart from the fact that that cash pooling served completely different purposes and did not serve as payment for WAV’s use of the vessels. This is supported by the findings of a London arbitration.

What is the current situation of things?

I am an officer of the Court. I have been working on cases for 20 years and the liquidator’s job is to investigate the situation, find out what assets the company has and ultimately sell them to get as much money as you can get back to the creditors. I have a duty to investigate what went on in the company that led to the liquidation and if necessary, seek recoveries from misconduct. We have investigated everything, we have been involved for 15 months and for us it is crystal clear that Sea Trucks right now own 32 vessels. It does not have day-to-day physical possession of these vessels. The legal owners are Sea Trucks entities, not WAV. And the bondholders have mortgages over almost all the vessels.

Our job is to claim the vessels and recover the properties of Sea Trucks, and realize maximum value for them.  We also have been investigating what went wrong. Why did the company end up in this place?

And whilst the big picture relates to oil price drop we discussed before we have also unfortunately discovered some transactions that appeared to be taking place for personal reasons. There were payments to family members, a very young child, million-dollar payments, and $18 million payments to Roomans personally under a sham contract, when the money actually belongs to Sea Trucks.

We think it is unusual, for a big company with public listed bonds to be paying over $1.5 million to the 3-year old of the CEO and over $5.5 million to the CEO’s life partner, who actually is not active in the business. So, unfortunately it appears that the owner of the business didn’t respect the boundaries between Sea Trucks assets and personal assets, which was made worse by the fact that he borrowed $575 million dollars using the assets of Sea Trucks companies as collateral for the bond debt.

However, it very important to note that these matters are now subject to court proceedings and these transactions have been brought to the attention of relevant authorities as well, so we are unable to disclose any further details in relation to these matters or any possible sanction that may occur.

What assets is STG really trying to recover?

Sea Trucks has 32 vessels in Nigeria c namely Jascon (“J”) 2, J3, J8, J9, J11, J12, J20, J23, J24, J26, J27, J33, J39, J40, J45, J51, J52, J53, J55, J57, J60, J61, J62, J63, J64, J65, J67, J68, J69, WALVIS 1 and WALVIS 5 (collectively the OOIM Vessels) and the dynamic-positioning vessel, J30 which we are trying to recover. We are also taking action to recover the amounts relating to the misconduct we discussed earlier.

Why is it proving difficult to get justice?

Good question. This has been a long saga. On the legal front, WAV have sought to elongate the Nigerian and English legal processes and have brought more than one action relating to the same matters.

The fundamental contracts, which are the vessel charters between STG and WAV are all governed by English law. There is a standard clause that in the event of dispute the jurisdiction to arbitrate is in England. We have done that. We have pursued arbitration. The arbitration verdicts confirmed that Sea Trucks owns the vessels and that WAV has no right to use the vessels.

Our next job is to take those rulings to Nigerian court to get recognition and whilst that may be challenging, we will get there at the end.  What we also think is very important is that we tell the whole story to people.

We hope that we get the kind of assistance from the oil and gas industry that should be forthcoming to any legal owner of a vessel, that is denied access to it by a third party acting illegally. In other words, I hope that stakeholders in the oil and gas industry recognize that contractual rights should be respected and that they understand these are not WAV’s vessels to utilise, but Sea Trucks’. To this end the IOCs have been informed that fundamentally they are doing business with company that has no right to be using these vessels. As well as that the IOCs probably need to think about whether by using WAV, are they complying with local laws? My understanding is that NIMASA has raised serious questions about the Nigerian flag registration for the overwhelming majority of the vessels WAV are using. Are WAV complying with the local content rules? And if not, how is that fair to other local operators that make the effort to comply?

So, we are trying to inform people about the true situation. We hope this shines light on a situation that seems not to be in the interest of the Nigerian economy, a situation that is unlikely to inspire international lenders to lend money into Nigeria or give confidence about doing business in Nigeria. The message to the oil and gas industry is that if you are using any of the OOIM Vessels or J30 through WAV, you are trading with a partner that is using them illegally.

In effect you are saying that it will have negative impact on Nigeria?

Undoubtedly. The Sea Trucks’ bond of $575 million was one of the largest bonds in the market. The bondholders that lent money to Sea Trucks are Western American international lenders, blue chip companies, and many of those companies have a lot of emerging market-African exposure. And I know from speaking to them that case goes against a point of principle for them. When they lend money, and take collateral, if things go wrong, they are expected to be able to fall back on that collateral, if that is not the case, why should they lend money in the first place?

Following your appointment as a liquidator, there has been some restructuring. What can you tell us about that?

Following the liquidation, there were four more vessels that Sea Trucks owned. Dynamic positioning (DP3) vessels that were not in Nigeria but were operating all around the world. We decided to run a process to try to sell those vessels. Clarksons, the ship broker, I think the biggest ship broker in the world handled the marketing of the vessels. They ran a comprehensive marketing process for those vessels and the indicative values of the best bids, were shared with the bondholders because all these vessels were mortgaged. Based on the bids received, we asked if the bondholders wanted us to sell the vessels, in accordance with the best bids. We also had independent valuations carried out by an independent vessel valuation agent.  Based on the bids received the bondholders decided the values were not sufficient and would rather enforce the mortgages and sell the vessels to a new company that they owned.

They choose Telford Offshore, a new company, which is owned by the bondholders including Roomans, as he held bonds in Sea Trucks, and now owns bonds in Telford.

The bondholders decided that, they think that they are better holding these vessels and not selling them at the bottom of the market. They enforced their mortgages and the vessels were sold to Telford Offshore by receivers for a total price of $215m, which was far in excess of the bids received.

I think it has been described as opaque, but I do not agree with that. I refute any allegation that it was done as a knockdown price. There was a valuation procured and there was an extensive marketing process done by world class brokerage firm.

If you are given a crystal ball, how do see the end?

We have no axe to grind, we are not after people personally, and we want to be respectful of the jobs and communities at stake. We need to recover what is ours and we will do so through the courts. We have made numerous attempts to broker a deal with WAV consensually and find peace. Unfortunately to date these attempts have not proved successful.

So, whilst we’re still open to finding a solution consensually, if we cannot do so, we will continue to pursue the vessels legally and commercially.

How will that end up?

That will probably end up in lots of vessels being arrested and out of action; 32 vessels could be out of action until we get them back. That would be unfortunate but that is what the legal route could yield.

Ultimately, we will get the vessels back and we will sell them. I think that whatever happens, these vessels will ultimately remain in Nigeria to service the oil and gas industry because these vessels belong in Nigeria and they are a kind of fleet designed for Nigerian market. We do not see these vessels leaving Nigeria, but we need to have them back, recover what is ours and sell them to a new operator, so the bond debt can be repaid.

Are you foreclosing the chance of STG continuing doing business in Nigeria?

STG will not be doing business. We will be recovering the vessels and then, we will be selling the vessels to somebody else to do business. An indigenous Nigerian company that will comply with the local content, you know Sea Truck is in liquidation and once it recovers its assets, it will sell them to the highest bidder and they will be free and clear of any dispute.

We just want to recover properties of STG and then sell them to a new operator. And recover as much value to the bondholders as possible. We continue to hope that an amicable solution can be found, we sincerely hope that it is possible. But we need everyone involved to realize the true situation and try to provide the conditions for such as settlement.

There have been some advertorials by WAV and groups said to be sympathetic to it alleging that there was a mistreatment of Roomans?

Yes, I have heard that, and I tried to be sympathetic. It is a great shame that somebody who founded a successful business for many years and gave a lot of employment to the Nigerian economy could not repay $575 million that he borrowed, but that is the reality of the situation. Unfortunately, that is the simple, tragic story; Roomans was in control of Sea Trucks, when it borrowed too much money and he was in charge of Sea Trucks when Sea Trucks could not repay the money.

What is probably a bit unusual is the action that has been taken by WAV and Roomans to defy the law of contracts and to claim assets that are not theirs, but which were properly offered up by Sea Trucks, led by Roomans, as security for borrowings of over half a billion dollars.

For, that, I do not have sympathy. In the end, the allegations of mistreatment of Roomans, of conspiracy and theft of somebody’s business, are actually a smoke screen and don’t really make any sense or stand up to scrutiny. The real story is a lot simpler. Roomans led Sea Trucks into borrowing money, pledged the vessels as collateral for that money and could not repay that money. And the bondholders who lent that money are simply trying to recover the assets that were pledged as security for that money. There is no conspiracy and no mistreatment and no desire to steal someone’s business. It is that simple.