Lawyers, travel bans and money in action over fertilizer group sale

Pankaj and Radhika Oswal in happier times.

Flamboyant Indian couple Pankaj and Radhika Oswal flew back to Australia to fight their colossal court action against the ANZ two weeks ago.

No sooner had they landed than the Tax Office slapped them with a Departure Prevention Order (DPO), stopping the two from leaving the country indefinitely.

The Commissioner has a $190 million claim against them. And without venturing into the merits of the case, albeit one for an internal cashless transfer of shares, the travel ban tends to further enshrine the double standard so prevalent in government; the hypocrisy, that is, of treating the establishment more leniently than outsiders.

A host of multinationals should owe the Tax Office a lot more than the Oswals but you would never see a Chevron executive, for instance, barred from travel until the company sorted out its settlement.

The ANZ pulled the pin on the Oswals’ $3 billion dollar fertiliser group Burrup in 2009.

When the case between ANZ and the Oswals kicks off in a couple of weeks in the Supreme Court of Victoria, expect a new dawn in the festival of mudslinging.

There is a slather of legal claims and counterclaims and a raft of parties to the actions, and the bank’s lawyers will seek to discredit Pankaj Oswal for various breaches of fiduciary duty; along Clive Palmer lines, that Oswal used his fertiliser company Burrup as a personal piggybank.

Indeed there are no cleanskins in this showdown but the question is: did the bank, its insolvency people and their lawyers behave any better? And what is their exposure legally?

So aggressive was this receivership – PPB, Freehills, Minter Ellison and their coven of consultants managed to spend $56 million in just 13 months – it would bring a tear to the eye of Mad Max. Apart from the cost of parties, they even charged $19,240 to fill out a form, claiming it took 48 hours.

Bear in mind Burrup had just one plant, one major supplier, one product and one customer. Only one employee was removed, Pankaj Oswal.

Meanwhile the Supreme Court action is shaping as a test case for banking and insolvency. The action seems too big to settle, and ANZ has made no provision in its accounts for any liability.

The Oswals apparently have the cash to fight it, having plonked more than $4 million on the table already in security for costs. Having had their reputations trashed, they have little to lose.

Illustration: Michael Mucci.

ANZ though, which declined to respond to questions for this article, may be hard-pressed to explain to the court why it sold Burrup to its major supplier, US gas giant Apache Energy, when there were higher offers put forward by the likes of Wesfarmers and Incitec.

Further, why did they sell it to Apache when Apache was in the process of suing Burrup (its customer – therefore suppressing the purchase price). Burrup had struck a low-priced, long-term gas supply deal with Apache and Apache was litigating to have the deal renegotiated in its favour (gas prices had shot up).

Why was a boutique merchant bank in Melbourne, Flagstaff Partners, mandated with ANZ’s sale of Burrup; and why was a global bank with fertiliser expertise such as Goldman Sachs or UBS not appointed? Where were the private-equity buyers?

There are two elements to the size of the Oswal claim, one being that PPB sold the asset for at least $1 billion too cheaply, and without proper process. The second is that Radhika Oswal is claiming she wants her Burrup shares back. She was the major holder. She claims her 35 per cent was worth $US980 million but was sold for $US314 million.

On damages, a US expert’s report for the Oswals, estimates the shortfall in the Burrup sale at $US800 million. In other words, PPB should have sold it for more than one billion dollars more than it did.

According to correspondence from Apache’s lawyers, Clyde & Co, “Apache estimates the claims against it by (the Oswals) including defence costs amount to approximately $US943.5 million.

Yara, the Norwegian fertiliser company which held 25 per cent of Burrup, estimates the Oswals’ damages “could be as much as $US166 million”. This case is a monster.

Who got what so far? Yara got 100 per cent of an asset, Apache got to drop its lawsuit and signed a new gas supply deal at higher prices and still supplies, ANZ sold Burrup for principal and interest, Flagstaff got $6.8 million, and after raking out $4 million a week in fees, the paper shufflers from PPB and the law firms have $20 million tucked away in escrow for legal fees for ANZ, Yara and Apache.

Yes, Australia is definitely open for business, if you’re a lawyer or liquidator.