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Creditors charge 'sham transaction' in Buccaneer bankruptcy

Dermot Cole
Buccaneer Energy's jack-up rig Endeavor in Cook Inlet north of Anchor Point. August 23, 2013

FAIRBANKS -- Companies trying to collect millions from a failed oil and gas exploration company in Cook Inlet claim that the financial affairs of Buccaneer Energy are tied up in an elaborate shell game.

A month before Buccaneer Energy filed for protection under Chapter 11 of the federal bankruptcy laws May 31, its biggest lender entered a “sham transaction” to circumvent Australian law, according to a court filing in Texas by unsecured creditors of Buccaneer Energy, including oil and gas support firms.

Meridian Capital International, which owns 19.99 percent of Buccaneer, is the largest owner and was the largest secured creditor of Buccaneer as of January. The unsecured creditors charge that Meridian engineered a transfer of its secured debt of $58 million to another company that paid nothing for the debt.

Buccaneer, which has benefited from state subsidies through state tax credits and a state-backed investment in a jack-up rig, was insolvent by last December, the creditors said. In the months that followed, Meridian’s conduct allowed the company to run up more than $15 million in unsecured debt, the creditors said.

Even before the Chapter 11 filing, Buccaneer faced numerous court challenges and legal fights concerning its finances and operations in Alaska, over everything from paying its bills to whether it was draining oil from leases it didn't control.

Under Australian securities law, Meridian is prevented from acquiring assets of Buccaneer through foreclosure.

“On the eve of bankruptcy, in an attempt to circumvent such prohibitions, Meridian transferred the secured indebtedness to the newly formed AIX,” the creditors said in a 54-page document filed Monday. AIX, which was started in April with $20,000 of capital, didn’t pay anything to Meridian, but with the transaction it became the official lender of nearly $60 million.

“AIX is a shell company acting as a front for Meridian,” the creditors charged. AIX wants to bid to purchase the assets of Buccaneer in a credit bid auction, a plan that the creditors have asked the bankruptcy court to stop.

“Allowing AIX to credit bid would permit Meridian to use the American bankruptcy system to do what it cannot do in Australia,” they said.

Meridian actually paid AIX $1.5 million to fund the costs faced by AIX in seeking to acquire the assets of Buccaneer, they said. It also signed on to pay salaries of $40,000 per month to the two principals of AIX. 

A year ago in June, Meridian bought 19.99 percent of Buccaneer for $20 million, just under the 20 percent level at which it would be officially classified as a corporate insider. By the end of 2013, Meridian controlled the Buccaneer board, the creditors said.

They charge that Meridian took steps to prevent efforts to recapitalize Buccaneer with outside investment and other actions that harmed creditors, such as requiring Buccaneer to transfer $10 million to Meridian from the $40 million the company received from the sale of its Cosmopolitan oil and gas assets early this year.

“These payments were made while the debtors were insolvent and could not pay their obligations as they came due,” the creditors said.

The committee that represented unsecured creditors asserts that AIX and Meridian face liability on several legal issues. AIX and Meridian said they do not believe that any claims are legitimate and the “suggestion by the committee that such claims do exist is unfounded and seriously misleading.”

The committee said the actions of AIX and Meridian are "tainted by inequitable conduct, which caused the debtors' bankruptcy after the needless incurrence of significant unsecured debt."

The Alaska Industrial Development and Export Authority, which invested $23.6 million in the jack-up rig, has also challenged the auction plan, saying that AIDEA's interests -- in the form of liens on state tax credits and royalty interests -- deserve more protection.