Losing out on future interest payments on investment

Everest Climber

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Hello,

Apologies if this is in the wrong thread, this is my first post. Please feel free to move it.

Back in 2012, my father invested €200k in an alternative energy project. Without going into too much detail, it was supposed to pay simple interest of 10% per annum for 20 years, following which my father would get his €200k back. Things have gone very smoothly so far and he has been receiving his €20k per annum in interest each year. It might sound too good to be true given interest rates today, but the world was obviously a very different place in 2012 and my father took a bit of a risk, which seems to have paid off. The investment has 13 years to run.

He was recently contacted by his financial adviser who set up the investment (a family friend with some involvement in the alternative energy project) who told him that his €200k is being returned to him and he will not be receiving any future interest payments. The financial adviser said that the alternative energy project is being sold to a private equity company and the investors, such as my father, are having their principal returned to them, but are not being compensated for future loss of interest payments. I am only relaying what the financial adviser explained to my father and it sounds pretty vague and unsatisfactory to me. The financial adviser has asked my father to meet with him in a few days and sign the relevant paperwork.

My father is hugely disappointed as this puts a serious dent in his retirement plans and may require him to start working again (at the age of 67, with some complicated health issues, so not ideal).

At a basic, fundamental level, this sounds unfair, and I suppose my queries are:

1. Who should my father seek advice from about this? My sense is that an independent financial expert who is familiar with investments such as these would be more useful than a solicitor. Any suggestions would be very welcome. We would be happy to engage someone formally and pay them the going rate for advice.

2. Has anyone ever heard of something like this happening before?

Thanks very much for reading and for any suggestions. Apologies for the lack of detail - I wasn't even aware that my father had made the investment back in 2012 and I'm only finding out the details now.
 
2. Has anyone ever heard of something like this happening before?
Its not unusual to have early break clauses in these type of investments, particularly in the event of a sale.
You'll need to get the original investment documents and review for such clauses. They will indicate if any compensation is due.
 
Thanks for reading and responding.

Yes, I have actually done that and no particular clause is jumping out at me as an early break clause, and there is certainly no mention of compensation. I think I will go along to the meeting between my father and the financial adviser and ask the adviser to take us through the documents, following which we may have a better idea of the basis upon which the investment is being wound up early. I think it's best that my father doesn't sign anything at that meeting until we get a chance to go through the documents ourselves afterwards.

Thanks once again.
 
The full details of what can and can't be done is probably in the prospectus. It is unlikely that you have a copy of this. It is also likely that this is an unregulated investment, so legal action would be your only, expensive course of action if looking for compensation.

You will need to get specialist legal advice. €260,000 is a lot of money to lose out on.


Steven
www.bluewaterfp.ie
 
Thanks, Steven, that is much appreciated.

Fully agreed, it is a huge amount of money to miss out on, and we don't know who exactly to turn to help us. I'm actually an accountant and my brother is a solicitor, but neither of us are much help to my father in this situation. I think you've hit the nail on the head when you say we'll need specialist legal advice if we intend to take this on.

Again, thank you.
 
Yes. You need a solicitor. Gather up all the documents that you have. Your dad should ask the advisor to send him the documents it is proposed he sign too. They will tell the solicitor a lot. Under no circumstances should he sign or even orally agree to anything. If your dad doesn’t have everything the advisor should be able to provide him with copies.
 
Bernie Madoff similarly promised his investors a consistent return of 10% per annum. And that's what he delivered. Until, of course, the biggest Ponzi scheme in history collapsed in spectacular fashion.

If it looks too good to be true...

IMO your father should thank his lucky stars that it appears that his capital is being returned in full. If the €200k represented a material proportion of his life savings, he should be doubly thankful.
 
Hi - I think you need to dig into the specifics and start trawling through documents.

My first question would be whether the investment was a form of equity issued by the company or a form of loan / bond. While a fixed % payout with a redemption at the end acts like a bond, there are certain equity classes that can act like that.

The reason for asking is that if it is equity, you will need to go through the Memo and Arts of the company to look at issued equity and provisions around which classes have voting rights or not and in which circumstances equity holders can be forced redeemed. For most companies, once a buyer has a certain % of the voting equity they can force the remaining equity to be sold.

If it is a bond / debt instrument, again the terms may be in the Memo & Arts or there may be a standalone prospectus / offering document. Again the terms of an early redemption clause should be in there.

Your other idea is good as well - you should get his financial advisor to point to the clauses / terms that allow an early redemption. Though it is possible a shareholder resolution could do it - but they should provide proof of the resolution (or whatever their basis is)
 
Many thanks, EmmDee. Based on my review of the documents, it is a form of loan/bond, rather than an equity investment. I don't seem to have all of the necessary documents, so I will request these from the adviser and review them in detail.

Thanks again for responding.
 
To be honest, the legal advice you would need to get on this would be very expensive. You would have to use one of the large specialist law firms if you are dealing with unregulated instruments and private equity companies. I agree with Sarenco above. 10% per annum for a debt like instrument sounds like it too good to be to true. I would imagine it is heavily subordinated and possibly convertible to be almost equity like. Most of these instruments will carry call options for the issuer. See what your financial advisor says but be very careful. Even if then back down and leave you there, you might not be best advised to leave the funds there. I would be inclined to think you had a great 6 years and it is time to get out of dodge!
 
The financial adviser who put him into the investment should be struck off.

Investments paying 10% are hugely risky; I’d be more concerned about return of capital rather than return on capital.

Crazy stuff.
 
In fairness the financial adviser was a family friend and his call did really well for the client/friend. I know it wasn't the usual type of investment but it paid off, so calling for his head is over the top in my opinion. After all, many, many, people on insight from Financial Advisers, have put their money in what might be called top of the range investments over the years, several have lost everything. Only recently I was reading of John Teeling's strategy for putting money into shares, etc, wouldn't imagine he would use any of the high street advisers in having anything to do with his hard earned money. After all they're in it for the money, at least 99% of them and the other 1% are lying if they say otherwise.
 
In fairness the financial adviser was a family friend and his call did really well for the client/friend. I know it wasn't the usual type of investment but it paid off, so calling for his head is over the top in my opinion. After all, many, many, people on insight from Financial Advisers, have put their money in what might be called top of the range investments over the years, several have lost everything. Only recently I was reading of John Teeling's strategy for putting money into shares, etc, wouldn't imagine he would use any of the high street advisers in having anything to do with his hard earned money. After all they're in it for the money, at least 99% of them and the other 1% are lying if they say otherwise.

The father had health issues and by the sounds of it is dependent on this money if he talking about having to work again if he doesn't get the 10% return. Putting in that amount of money which sounds like a considerable percentage of his assets into what sounds like a private investment in an alternative energy project that the financial advisor himself is involved in sets off so many red flags that I would be asking the advisor to bring the 200k in cash to the meeting.
 
I know it wasn't the usual type of investment but it paid off
The amount involved is obviously very material in the overall net worth of the client, if the loss of income could be enough to force him back to work. Putting a material amount into an investment that had capped upside, unlimited downside, and an option for the borrower to terminate early does not sound like a suitable investment in those circumstances.
 
In fairness the financial adviser was a family friend and his call did really well for the client/friend. I know it wasn't the usual type of investment but it paid off, so calling for his head is over the top in my opinion. After all, many, many, people on insight from Financial Advisers, have put their money in what might be called top of the range investments over the years, several have lost everything. Only recently I was reading of John Teeling's strategy for putting money into shares, etc, wouldn't imagine he would use any of the high street advisers in having anything to do with his hard earned money. After all they're in it for the money, at least 99% of them and the other 1% are lying if they say otherwise.

Wrong.

The adviser is scum of the worst kind.

He should be reported to the regulatory authorities.

In my experience, the “family friend” adviser can be one of the most conniving and dangerous.

As for your comment regarding advisers generally, are there many suppliers of goods and services who aren’t in business to make a profit? It’s all about doing the right thing for the customer, and in this case that’s not what happened. As for John Teeling, with respect to him, he hasn’t a clue. A layperson rifleshotting shares is almost guaranteeing a poor outcome.
 
I rest my case.

A glib response which shows you misunderstand the fundamental point.

John Teeling knows plenty about many things; I would venture that investing in a globally diversified manner isn’t one of them. Exhibit A, Sean Quinn Esquire.

A person who’s been very successful in his or her own field, e.g. an entrepreneur or a very high earning professional, will often be a terrible investor more generally.
 
A glib response which shows you misunderstand the fundamental point.

John Teeling knows plenty about many things; I would venture that investing in a globally diversified manner isn’t one of them. Exhibit A, Sean Quinn Esquire.

A person who’s been very successful in his or her own field, e.g. an entrepreneur or a very high earning professional, will often be a terrible investor more generally.
Mr Quinn was invited to join an elite group by a top financier. Great advise alright. In any case, i'd back Mr Teeling against any so called financial adviser. You can tut tut all you want and i'm sure you're outstanding in your own field, just like myself.
 
Mr Quinn was invited to join an elite group by a top financier. Great advise alright. In any case, i'd back Mr Teeling against any so called financial adviser. You can tut tut all you want and i'm sure you're outstanding in your own field, just like myself.

No actually. My sense is that Sean Quinn thought that his business acumen could be replicated in areas such as regulated financial services. He was not “invited” to get into insurance or banking.

There are charlatans in every field; it is just silly though to make wild claims about a successful whiskey entrepreneur knowing more than actual professionals.

You do know that there are actual professionals out there rather than just a gaggle of snake oil salesmen?
 
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