Shares and Assets
I produced this page in response to an observation that I had not made sufficiently clear the relationship between the companies, Eden Land Planning Ltd. and Redruth Eden Ltd., and also the distinction between tangible assets and company shares. Thus, the information here is not new but is intended to clear any confusion of terms.
In July 2018, the directors of the parent company, Eden Land Planning Ltd., established a new company, technically a Special Purpose Vehicle, (SPV), called Redruth Eden Ltd. with themselves as directors. Initially, Redruth Eden Ltd. had no assets.
There followed a period of fund-raising, based on an Investors Presentation document. 22 Investors contributed a total of £2,240,000. Prior to acquisition, the total assets of Redruth Eden Ltd. peaked at £2,240,000 in the form of money held in ELS Legal's client account.
The Investors Presentation stated: Acquisition costs, £2,200,000, Professional fees, £40,000.
Immediately on completion of purchase, the total assets of Redruth Eden Ltd. comprised: Land at Redruth worth* £1,475,000 (the undisclosed true purchase price) and £661,750* in money still held by ELS Legal. Total asset value: £2,136,750. (The difference, £103,250, had been spent on professional fees and taxes).
* (worth £1,475,000 - Purchase price, as per HM Land Registry, Title number CL343210).
* (£661,750 - This figure and all figures derived from it represents the most accurate data available to me. I am confident it is accurate to within a few percent).
The next transaction was to transfer £661,750 from ELS Legal's account into Eden Land Planning's account. This transfer occurred without the investors' knowledge. The investors believed (and still believe) that all their money (except professional fees) was used to purchase land, as per the prospectus and ELS Legal's confirmatory letter.
The Shareholders' Agreement, (which still did not exist) states: "The Shareholders hereby authorise the Directors of the Company to transfer the balance of all funds held by the Company after Completion to ELP" (ELP = Eden Land Planning Ltd.)
The Shareholders' Agreement also says that ELP will use this money to achieve the outcome projected in the Investor Presentation, i.e. increase the value of the land such that it will sell for £3.1 million in 14 months time. The land remains unsold after five years.
The Shareholders' Agreement further states: "The Shareholders hereby authorise the Directors of the Company to . . appoint ELP to . . retain as a dividend the balance of any funds transferred after all payments relating to the Services and costs of third party associated partners." In other words, none of that £661,750 is ever coming back to the Shareholders of Redruth Eden Ltd.
These provisions of the Shareholders' Agreement effectively license, retrospectively, the permanent transfer of 30% of the pre-acquisition assets of Redruth Eden Ltd. to Eden Land Planning Ltd.
The Shareholders' Agreement was produced by ELS Legal and circulated for signature two months after they had completed the purchase and the transfer of the (undisclosed) sum of £661,750 from Redruth Eden Ltd. to Eden Land Planning Ltd.
The Shareholder's Certificates were issued to the investors four months after completion of purchase. For every £1 tendered, the investor received one fully paid £1 ordinary share in the company, Redruth Eden Ltd. Thus someone who invested £100,000 received 100,000 x £1 ordinary shares.
But, the sole assets of Redruth Eden comprise land purchased for £1,475,000. All the residual money was transferred out of the company on completion of purchase.
It follows that these 2.24 million ordinary £1 shares were worth 66 pence each from the moment the undisclosed transfer took place.
It is just conceivable that Eden Land Planning Ltd. believed that by using the transferred investment capital as working capital they could add value to the purchased land to meet the prospectus targets. But if that was their business plan it should have been set out in the prospectus instead of imposing it by stealth.