Deal gives Poseidon investors hope of some payment

Investors in failed oilfield services firm Poseidon Concepts Corp. are being offered hope of some compensation under a settlement reached by the law firm leading a class-action lawsuit.

Toronto law firm Siskinds LLP says up to $36.5 million would be contributed from insurance policies to be distributed to shareholders, as well as other claimants including lenders, under the agreement with directors, officers and other related entities.

“The only realistic source of recovery at this point in time is the balance of the liability insurance policies of the directors and officers, which is very rapidly depleting,” said Siskinds associate Sajjad Nematollahi.

Poseidon’s assets have been sold by a court-appointed monitor for less than its secured debt. Under the settlement, an initial instalment of $7.6 million would be assigned to the class action and $21.3 million would go to the company’s estate to be distributed according to a formula that usually gives first claim to secured creditors.

The actual amount each shareholder stands to receive will depend on the court’s ruling. Nematollahi said more than 2,000 shareholders are registered under the class action.

A second instalment of up to $7.5 million in insurance funds would be set aside until April 2019 in case it is needed to help directors and officers defend themselves in regulatory or criminal proceedings.

Nematollahi said the deal includes a plan to file legal claims against Poseidon’s auditors and the underwriters of a 2012 share issue.

The two parties are opposing the deal which is to be presented to an Alberta court in February for approval, he said.

Poseidon was spun out of Calgary-based Open Range Energy in November 2011 to develop and sell its storage systems for the enormous amounts of water required for oilfield fracking operations.

The value of the new company’s shares soared, but fell quickly after February 2013 when it announced that it had incorrectly recorded about $100 million in revenue in the first nine months of 2012.

In June, the Alberta Securities Commission ordered Poseidon’s former U.S. senior sales executive to pay $750,000 in fines and costs. Last year, three of Poseidon’s other executives agreed to fines and accept trading bans after admitting they hadn’t filed financial statements.