Bula directors are strongly criticised in report

The directors of Bula Resources are strongly criticised in the 187-page report by the Government-appointed inspector Mr Lyndon MacCann.

Mr MacCann concludes in his report that the former chairman and managing director of the company, Mr Jim Stanley, was the beneficial owner of a British Virgin Islands company, Mir Oil Development Ltd, which came into the possession of £2.5 million worth of Bula shares as a result of a deal set up by Mr Stanley. Bula paid over the shares for a stake in a Russian oilfield, which now appears to have little value.

Mr MacCann finds in his report that Mr Stanley told Bula's Russian partners, KMNGG, that Mir Oil was part of the Bula group of companies. He told Bula that Mir Oil was owned by a South African businessman, Mr Charles Ellis. In both cases he was lying.

Mr MacCann reports that no due diligence or examination of the books of Mir was carried out after Mr Stanley assured the Bula board that Mir Oil, and its subsidiary, Mir Space, were shelf companies.

Mr Stanley first mentioned the possibility of a deal to his fellow directors in March 1995. By June 1995, two Russians who were on the Bula board as a result of an earlier Russian oil deal, raised questions as to who was the true beneficial owner of Mir Oil or its subsidiary, Mir Space. Mr Stanley, at a board meeting on June 26th 1995, denied he had any interest. Mr Pat Mahony and Mr John McGilligan were appointed to a committee to examine the proposed deal.

In August, Mr Stanley had told the board that he had no interest in Mir and said that Mr Ellis was the ultimate beneficiary.

The two Russian directors continued to raise questions and, on September 1st, 1995, were told by then company secretary, Mr Ivan Walpole, that the company had been advised of the name of the beneficial owner of Mir Oil "in confidence". Solicitors acting for Bula had been told in August by Ms Sue Ann Neil, the owner of a Jersey company, Chamonix Corporate Services Ltd, that "the beneficial owner of Mir Oil is Mr Charles Ellis", a South African.

The deal was executed on September 1st, 1995. Ms Elena Loven, Mr Stanley's Stockholm-based Russian translator and personal assistant, signed on behalf of Mir Oil. As part of the deal, 101 million Bula shares, worth £2.5 million, were transferred to Mir Oil.

By the end of December 1996, Bula had invested £11.25 million in Eastern Resources - a joint stock company established between KMNGG and Mir to implement the deal - for development work in the Russian oil field. On October 13th, 1996, Bula had announced a 942 barrels per day flow at a test well in the oil field, which included reference to a new pipeline. "This pipeline was constructed at a cost to Bula of several million dollars and was installed before any commercial oil flow rate had been achieved or purportedly achieved," Mr MacCann reported. He found this "somewhat surprising".

The October announcement was incorrect and no oil had flowed from the well. However, before this was discovered, the Bula share price increased from 2.5p to 3p. Mir Oil was one of the most significant dealers in Bula shares during this period. In November 1996 and January 1997, 27.8 million Bula shares were offloaded by Mir Oil, netting £665,000 sterling for Mr Stanley.

In March 1997, the true results from the Russian test well were announced. Mr Stanley resigned from Bula in April. In May, at a meeting in Moscow, Mr Mahony, now chief executive, was told by a KMNGG executive, Mr Nikolai Bogatchev, that his company had believed, when negotiating the oil deal, that Mir Oil was part of the Bula group.

In his report, Mr MacCann tells of a conversation which occurred between Mr Stanley and Mr Jeremy Nieboer, a solicitor with Gouldens solicitors, London, who was a neighbour of Mr Stanley in Co Kilkenny. Mr Nieboer told Mr MacCann that, in February 1995, Mr Stanley had told Mr Niebor that he wanted to involve his son, Brendan, in a project in Russia. Mr Niebor advised Mr Stanley that, within the meaning of the Companies Act, Mr Stanley's son would be a related party and his interest in any project would have to be disclosed to the Bula board.

A month later, when Gouldens was working on the KMNGG/Mir/Bula deal, Mr Niebor and Gouldens were, in view of the discussions Mr Niebor had had with Mr Stanley in February, "suspicious as to the true identity of the beneficial owner of Mir".

So concerned was Mr Niebor that, in March, on the day after Mr Stanley had first presented the deal to the Bula board, Mr Niebor met Mr Mahony in London and, according to Mr MacCann, "explained that there might be matters upon which Jim Stanley might wish to make disclosure and, in this regard, proceeded to inform Mr Mahony of the advice which had previously been obtained by Jim Stanley in relation to related party disclosures".

Mr MacCann also reports that, in March 1995, Mr Stanley, during a meeting with Mr Laurence Shields, of LK Shields & Partners, told Mr Shields that he had set up a deal between Mir Space and KMNGG and that "Mir Space was a company which his son Brendan `took' ". He told Mr Shields that although Mir Space was legally owned by his son, "the beneficial owners were `several other people' and that they were Russian".

Mr MacCann said that, in evidence, Mr Brendan Stanley has denied ever having any interest in Mir Space on his own behalf or in trust for third parties.

Another solicitor from LK Shields, Mr Emmet Scully, subsequently contacted Mr Stanley and said if Bula shares were transferred to Mir Space/Brendan Stanley, it would give rise to statutory disclosure requirements. "Jim Stanley responded by saying that he was glad to be aware of this fact and that he might instead put the Mir Space shares into the name of his then partner, Mary Kieran, instead." Since she was not his legal spouse, she would not be a connected person under the terms of the Companies Act.

Later again, Mr Stanley was advised by Mr Shields "of the difficulties that could ensue if the relationship between him and Mary Kieran were ever to come to an end. Mr Stanley responded by saying that the relationship with Mary Kieran might not necessarily be permanent. They then discussed whether it might be better to have the shares put into the name of a `more permanent person' instead".

Eventually the deal was signed. Mr MacCann, in his report, states that numerous documents were found in Mr Brendan Stanley's Dublin office which would seem to link him and his father to Mir Oil and Mir Space. On this basis he decided that both men were involved in an executive capacity as officers of both companies.

In relation to the false oil flow report, Mr MacCann finds that Mr Willie Donachie, a consultant, prepared the fictitious results at the request of Mr Stanley and Bula's technical manager, Mr Tim Howell. Mr Donachie's understanding was that the fictitious results were required to give Bula additional time to raise funding.

Mr Stanley met with a stockbroker in London in late April/early May of last year, when Mr Stanley had resigned from Bula and various investigations into the Mir Oil affair were getting under way. Mr Stanley said "Bula might be able to get the balance of the shares in Mir Space for a nominal consideration if Bula `called off the dogs'."

The following October, the Tanaiste, Ms Harney, appointed Mr MacCann.