To the dismay of ASA chief Vas Kolesnikoff, Empire has had the cheek to tie him down with a volley of legal demands. Photo: James Brickwood

As hostilities between the board and the rebel shareholders of Empire Oil & Gas veer towards a bloody showdown at next week’s vote, Empire and its lawyers have now turned the screws on the Australian Shareholders Association.

To the dismay of ASA chief executive Vas Kolesnikoff – who was just a tad busy this week with the likes of Billabong, Fairfax, Amcor, IAG, Newcrest and a host of other large corporate occasions – this pushy little ankle-biter from Perth had the cheek to tie him down with a volley of legal demands.

The sheer aggression from Empire may have rankled Kolesnikoff, who surely had better things to do than fend off haughty claims by a tiny oil explorer – that the ASA, among other things, “considers itself above the laws of Australia” – but they would come as no surprise to anyone who had followed this most bitter of corporate sagas.

Since a spat over a related party deal by directors earlier this year, Empire has threatened journalists and internet chat room operators – it has managed to muzzle discussion on HotCopper – and has even sued its own shareholders.

And now in its effort to derail the campaign from rebel shareholders the board has turned from the bellicose to the outright bizarre. Now the not-for-profit Australian Shareholders Association, which has had the cheek to back the rebel shareholders over the incumbents, is in the firing line as well.

ASA report

Empire had jacked up because of a report from ASA which claimed that shareholders had been intimidated. Indeed hundreds had withdrawn their support to call a meeting to depose directors after a letter from Empire’s lawyers. Empire’s lawyers though maintain there was no intimidation.

As a matter of housekeeping, we put questions to Empire for this article. “Just a quick word of warning though,” came the response. “If you’re relying on information from Mr Smith regarding the SPP I’d be very careful.”

This is a story, not just about a corporate feud, but about the very right to free speech. In shutting down HotCopper and others, it is yet another example of directors deploying shareholder funds to quash adverse commentary. Yes, a few of the posters on HotCopper who had criticised the board were scurrilous, but the board’s response has been overkill in the extreme.

It has opted to publish one of the legal threats from well-known Perth lawyer Martin Bennett on its website, not to mention publishing potentially defamatory claims against its detractors, chiefly Eddie Smith, the leader of the rebel cause.

The allegations which have been aired on the anonymous websites of the board’s supporters are far worse, downright nasty, alleging criminal conduct by certain dissidents. We are talking bikie gangs, and ponzi schemes and other fraud.

And so the stage is set for a denouement of Shakespearean proportions next Tuesday at the Tawarri Reception Centre in the Perth Suburb of Dalkeith.

The outcome is by no means assured. The rebels seeking election to the Empire board are Eddie Smith, Bernard Crawford and Robert Downey.

The ASA is backing the rebels on grounds of poor corporate governance by Empire – whose stock exchange ticker is the rather appropriate EGO. There are fragile and battered egos in both camps.

It also cites shareholder dissatisfaction with related party transactions – from which the dispute originally flared (and which we can get to later).

Rebel alliance

The Empire rebels – who don’t enjoy the luxury of shareholder funds to bankroll their legal proceedings – are madder than ever.

There were already five billion bits of paper floating about before directors placed another 385 million shares in a purchase plan (SPP) last week.

That brought the Empire issued capital to a grand total of 5.575 billion shares, fetching 1.5¢ apiece, for a total market value of $84 million.

“A $10,000 investment at listing in 1998 would now be worth $650 – a destruction of value of 93.5 per cent,” declared a missive from the head of the rebels Eddie Smith last week.

Empire is suing Smith.

Already irked by the perennially depressed share price and a retinue of controversial corporate deals, the rebel shareholders were seething when the company placed the SPP shortfall with “investors” at a walloping 50 per cent discount.

Besides the shortfall of 276 million shares, another 108 million were also placed, also at 1.055¢ a share.

They share price promptly bounced back to $1.6¢, handing a tidy and instantaneous profit to those who opted for a quick turn.

It was further insult to further injury for shareholders though – now further diluted by yet a further share issue.

From the time that Empire was listed on the ASX on January 15, 1998, until June 30, the shares have exploded in number.

Directors have been issued millions over the years, and they have sold many millions personally too. At June they held a combined total of 79,105,653 shares – or just 1.77 per cent of the company.

With that 1.77 per cent they have been able to cling to control, despite the perennially depressed share price and $37.7 million amassed by the company in accumulated losses.

Over the years, directors have received $11,233,844 in assorted benefits and payments. That includes  $1,326,204 for accountacy services provided by a related party.

Rumbles ramped up

Is it little wonder that the rumbles ramped up, given directors have been allotted plenty of stock over the years, and sold it for large profits.

Last year Empire incurred the first strike on its remuneration report when more than 25 per cent of shareholders voted against it.

Yet deeper grievances soon arose, and these were at the heart of the claims in the since-erased discussion threads on the internet, thanks to the related party transactions.

Last October, Empire swapped a promising tenement in the Canning Basin for a 25 per cent stake in another company, Key Petroleum. Soon afterwards, a major discovery was made nearby by Buru. Empire and its lawyers say that talks with Key had been afoot before the Buru find.

Empire then made a share placement at 1.5¢ per share, a deep discount to market, having only just placed stock four months earlier 2.5¢ per share.

As part of the Key deal, Empire personnel were also appointed at Key, and Key moved into Empire’s offices.

After the Key announcement but before the completion of the deal, Empire shares tumbled 30 per cent. Key shares, in stark contrast, rallied 41 per cent.

Rebel shareholders say there should have been an independent expert report on the transaction. Empire lawyers say this was not required.

There is sure to be a good deal more legal confrontation and confusion before Christmas.

Empire now says that if there is a second strike against the remuneration report and the board is “spilled”, then the meeting to re-elect new directors will be held on December 12.

As the vote to roll the board comes up on Tuesday, and the annual general meeting is scheduled for November 28, that leaves just two weeks for an alternative director to nominate for the board. When would the closing date for nominations possibly be? Hasn’t this gone far enough? Where is ASIC?