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Not sure we want to be in bed with Stanhill......
Evergreen Trustee Says Ex-Director Doomed Company

Share us on:TwitterFacebookLinkedInBy Dan Packel
Law360, New York (May 24, 2012, 6:25 PM ET) -- The Chapter 7 trustee of bankrupt Evergreen Energy Inc. slapped a former director of the company with a lawsuit Wednesday, alleging the director's conflict of interest obstructed the energy company from securing crucial financing and led directly to the firm's demise.
Trustee Charles Stanziale filed suit in Delaware bankruptcy court, claiming that Ilyas Khan, a principal of the merchant banker Stanhill Capital Partners as well as a board member of the defunct energy company, reneged on a commitment and prevented other firms from investing in Evergreen.

Khan advised the company in September 2011 that Stanhill Capital would purchase its K-Fuel clean coal technology business for $30 million, according to the trustee's filing. The anticipated deal precluded other efforts for Evergreen to secure additional investors, and when the deal collapsed in November 2011, the company was unable to secure funding necessary to continue operations. In January 2012, Evergreen filed for Chapter 7 liquidation.

"Khan and Stanhill Capital Partners did not make the offer in good faith with the intention of consummating it, but with the purpose of interfering with other offers so that Stanhill Capital Partners could later obtain the K-Fuel process for an amount far less than that set forth in the Stanhill offer," Stanziale claimed in the suit.

Evergreen's primary business was the development of K-Fuel technology, a patented process aimed at delivering cleaner burning coal. In recent years, the company sought to promote the product globally, with a focus on Asia, according to the complaint.

Yet Evergreen struggled to profit from the technology, which proved more expensive to commercialize than it anticipated, according to a recent quarterly report. Consequently, the company sought to gain financing through both debt and equity in order to stay afloat.

In December 2010, according to the Evergreen filing, Khan was invited to join the board of directors of the company. Khan also entered into an agreement with Evergreen to work to support the business development and financing of the energy company and was appointed director and executive chairman of Evergreen in January 2011.

According to the filing, Khan advised Evergreen in September 2011 that a group led by him was considering purchasing the company's K-Coal business. Later that month, London and Hong Kong-based Stanhill Capital Partners, of which Khan is a partner, delivered a written offer to purchase the shares of Evergreen that held the rights to K-Fuel for $30 million.

A stipulation in the Stanhill offer that prevented third parties from gaining shares in K-Fuel then precluded Evergreen from seeking alternative transactions or funding, the suit said. Thus, according to Evergreen, when Stanhill walked away from the deal in December 2011, the company was in no position to seek alternative financing, according to the trustee.

"It's a conflict. You're the chairman of a company and you're freezing everybody else out," said Stanziale. "It's not supposed to work that way."

The filing specifically alleged that Khan — as an investor in a competing energy company, White Energy, and a principal at Stanhill — had conflicting interests that prevented him from fulfilling his fiduciary duty to Evergreen as a director.

In the filing, Stanziale also argued that Khan and Stanhill never intended to complete the original deal with Evergreen, but instead sought to interfere with other potential transactions, so that they could either later acquire Evergreen at a bargain price or eliminate the company, which operated in the same market as White Energy.

Evergreen is seeking damages from both Khan and Stanhill Capital Partners.