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Victoria, Australia Supreme Court Sets Up Toll Road Showdown
Australian toll road project built upon highly leveraged shareholder debt set to fall apart.

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Following a ruling by the Supreme Court of Victoria, Australia, a 27-year-old will have a chance to shut down the A$4.8 billion Airport Link toll road next Tuesday. The BrisConnections toll project, built upon highly leveraged shareholder debt, fell apart as the credit crisis hit and the share price plunged to just A$.001.

This allowed a young Internet entrepreneur, Nicholas Bolton, to snap up 73,100,993 shares representing eighteen percent of the company with an initial investment of just A$47,923. That cheap initial purchase price, however, came with a catch. The BrisConnections stock is a "partly paid security" that requires a A$1 per-share payment on April 29, 2009 and a second A$1 payment on January 29, 2010 for the shares to become fully paid.

This setup has created what is considered the most disastrous share offering in the history of the Australian Securities Exchange. Many small investors and housewives were caught by surprise and found their bargain stock purchase converted each $100 investment into a debt of $200,000.

To salvage the situation, Bolton called for a special shareholder meeting to close down the toll road construction project and sell its assets. In this, Bolton won the support of Deutsche Bank, an underwriter that wants to get out from under this doomed project. BrisConnections management, however, took a dim view of the maneuver and sued to have Bolton's company, Australian Style Investments, disbanded. The suit backfired.

"I find that Mr Bolton's primary objective was to extract some value from his significant holding," Justice Ross McKenzie Robson wrote in his decision Thursday. "I accept that some value may have been extracted by strong 'negotiating position' which included being able to call a meeting of unit holders many of whom were disgruntled."

The court ordered the shareholder meeting to go forward after recognizing that Bolton began his efforts with a reasonable chance of taking control of the toll road. A September analyst report suggested the the toll road stock was undervalued and would be worth $2.95 per fully paid share. By October, the financial outlook worsened and a revised report suggested the stock's true value at just $1.35 -- a significant loss to shareholders. At this point, Bolton believed closing the company was in the best interest of investors and the sale of assets would provide a return of 67 cents per share to shareholders.

At the April 14 meeting, investors will first have a chance to vote on whether to shut down the project entirely. If this motion fails, the next vote will be to restore the distribution of a 5.95 cent dividend that had been promised in an announcement made on September 3, 2008. Another vote would delay or allow members to vote on whether to collect on the remaining $2 payments. Should these attempts fail, the shareholders would vote on whether to remove the management team of BrisConnections. The vote to dissolve the company will require a three-fourths vote, while removing management only requires a simple majority.

To counter Bolton's moves, the management of BrisConnections joined with Macquarie Bank in offering to cancel personal liability of shareholders for the $1 payment due April 29 as long as none of Bolton's resolutions pass. The shares would then be forfeited to the underwriters.

The uncertainty over liability has already scared several investors into dumping their shares to buyers like Brisbane Toll Road Link Pty Ltd. This company, run by David E Houge, 62, offered to buy shares at the rate of $10 for one million shares. By Monday he had collected 50,672,505 and a 13 percent stake in the company. In 1999 the US Securities and Exchange Commission banned Houge from trading in the US after accusing him of having "orchestrated the manipulations of three publicly traded micro-cap stocks." Macquarie likewise acquired 31,429,332 shares and an eight percent vote at the end of March.

Today, BrisConnections announced that negotiations between Macquarie and Deutsche Bank to resolve the standoff have failed.

"There can be no assurance a satisfactory proposal will emerge," BrisConnections said in a statement.

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