Former board Fairstar convicted for causing millions in damage
Four former executive directors and supervisory directors of Fairstar Heavy Transport in Rotterdam have been ordered to pay compensation to the company and its subsequent owner Dockwise for the injudicious acquisition of a heavy cargo ship worth 110 million dollars in 2011. The board had concealed the order for the ship from the supervisory board and the purchase had not been listed in the annual report.
With the ruling, a provisional end has come to a procedure that has been ongoing since late 2012. The lawsuit was filed by Fairstar and Dockwise, both specialists in the maritime transport of heavy cargo, who discovered the purchase following Fairstar’s acquisition by Dockwise in 2012.
A few months prior, Dockwise had acquired its competitor Fairstar by means of a hostile takeover. Because the acquisition was made without the approval of the listed Fairstar, the management of Dockwise was not able to inspect the books beforehand.
Because the acquisition was made without the approval of Fairstar, the management of Dockwise was not able to inspect the books beforehand.
It was not until July 2012, when the take-over had been finalised, that this became possible. When staff from Dockwise visited the office of Fairstar in Rotterdam shortly thereafter to inspect the administration, they discovered that in addition to the two existing heavy cargo vessels (‘Fjord’ and ‘Fjell’) and the two comparable ships that were under construction (‘Forte’ and ‘Finesse’), Fairstar had placed an order for a fifth ship: the ‘Fathom’, also a semi-submersible heavy lift ship. There was not a single mention of the Fathom in the public annual report published by Fairstar a few months earlier.
However, the contract with the Chinese shipyard had been signed and Fairstar had made a first payment of 2 million dollars. In fact, the ‘steel cutting ceremony’ for the ‘Fathom’ had already taken place on the 15th of October 2011 in the presence of a Fairstar executive.
Dockwise was displeased with the surprise fifth vessel, because Fairstar substantially lacked funds to finance the construction. Documents showed that Fairstar’s board had tried to secure funds in many different ways, but all their attempts had failed.
Documents showed that Fairstar’s board had tried to secure funds in many different ways, but all their attempts had failed.
The court therefore feels that the directors and board members ‘had been negligent’ in the performance of their executive duties. Not only because they kept the purchase off the books, but also because they let things run their course for about a year, which resulted in having a ship in the shipyard but no prospect of money for payment whatsoever.
The court therefore rules that they are jointly and severally liable for the damage they have caused to their own company (Fairstar) and to Dockwise.
Dockwise did allow for the construction of the original ‘Fathom’ to be completed. The ship was commissioned in 2014 under the name ‘Dockwise White Marlin’.
The CEO, his right-hand man and the two supervisory directors have seriously crossed the line in other ways as well.
The court feels that the CEO, his right-hand man and the two supervisory directors have seriously crossed the line in other ways as well. When it became clear that the take-over by Dockwise was imminent and they would no longer be in charge, they decided to adjust employment contracts. Generous severance payments were added to the contracts should a ‘change of control’ occur and competition clauses were eliminated. The four did not just do this for themselves, but also for various other important Fairstar employees. According to the ruling, there are substantial indications that this was done because the CEO had plans to resign and start a new company after the takeover and wanted to take a number of employees with him.
The court strongly condemns this: ‘By adjusting the employment contracts, the CEO and his right hand, have in fact acted against Fairstar’s best interest. This too results in serious maladministration for which they can be held personally accountable.’ The two supervisory board members can also be held personally accountable because their oversight regarding this matter can be considered inadequate, the ruling states.
As a result all four former executive directors and supervisory directors are jointly and severally liable for the damage caused, however, one them in the meantime has passed away. The exact amount of the damages has yet to be determined, but it is expected to run in the millions.
Boskalis, the current owner of Fairstar and Dockwise, says it is pleased with the ruling. At the moment it is yet unknown whether or not the former Fairstar directors will appeal the case.