ES Limited is a manufacturer of security doors and screens for banks and other blue chip companies. The business was acquired through a management buy out in 2002. The deal included freehold property, business assets and goodwill.

Following the acquisition the trading environment was difficult. Trading losses were incurred leading to problems with working capital and debt repayment.

The financial position became critical during 2005 with significant VAT and PAYE arrears and the Bank arranged for a large accountancy firm to carry out an independent business review. The directors feared that the Bank may appoint Administrators that could have resulted in the directors losing control and the business closing. This would have led to personal guarantees being called.

The Company had been receiving financial management assistance from a regional enterprise agency in 2005. With the worsening position the agency advisor suggested approaching Northpoint Associates for independent advice.

After meetings with the directors and the agency advisor we concluded that the core business could survive if a suitable restructuring was put in place that left the directors in control. After a recovery business plan was prepared it was agreed that a Company Voluntary Arrangement was the appropriate procedure.

We undertook significant work to assist the directors to prepare their CVA Proposal and assess if it would work. This included dialogue with the Bank, HM Revenue and Customs, key suppliers and customers. After these stakeholders indicated that they would agree to the CVA the Proposal was finalised.

At this stage Greg Whitehead of Northpoint Associates was appointed by the Company as the CVA Nominee and the CVA papers were filed at Court and issued to all creditors with notice of a meeting of creditors. In the period up to the meeting of creditors we dealt with questions from numerous creditors and continued to advice the directors on their conduct. The CVA was approved by 98% of voting creditors and therefore all creditors were bound by the terms of the arrangement. On approval Greg Whitehead was appointed as Supervisor of the CVA.

18 months into the CVA and the business continues to trade under the directors’ management and the Company is in compliance with its CVA contributions and a first dividend has been paid to unsecured creditors. The Company has also refinanced the business with the original Bank repaid in full.

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The following case demonstrates how the Administration procedure can, in the right circumstances, be used to promote business rescue and survival, save jobs and maximise returns to creditors.

E Angus Leybourne & Company Limited (“EAL”)

EAL had been trading since 1922, providing architectural services, most recently working with residential development companies in the North of England from its Hebburn base with a staff of 16.

The Company was in financial difficulty due to problems with historical contracts and the resolution of claims.  There was also legal action from HM Revenue and Customs.  The financial position constrained the directors’ ability to adopt an aggressive stance in resolving some claims and by late 2006 it was clear that the Company could not survive and formal insolvency was inevitable.  Greg Whitehead of Northpoint was introduced to the Company by its existing accountants and several meetings took place to review and evaluate the position.

The Directors decided that it was in the interests of the Company and its creditors that a settlement of claims in a short timescale was required as such claims pursued post insolvency was likely to have resulted in a lower realisation and significant additional costs.  Accordingly, settlement of outstanding claims was agreed. 

Following settlement of the claims the Directors recognised that the Company had no prospect of rescue.  Although the directors realised that a formal insolvency was inevitable they considered that the core business could be viable if a suitable reorganisation was implemented.   The Directors also considered that the business could only survive if the existing management team took it forward on the basis that the business provided professional services, was very much a “people” business and was wholly dependant on the business relationships that management has developed over many years.

The Directors decided to seek the appointment of an Administrator with a view to forming a new company to acquire the Company’s business and assets in order to give the best prospect of the core business surviving.

In addition the proposed transaction had the following features:

• Continued trading by an Administrator may materially deplete funds with no certainty of achieving a sale or completing work in progress or being paid for work done.
• Little incentive for existing management to assist post appointment trading exercise with a severe impact on contracts and client relationships.
• Higher value obtained for work in progress as existing management was in the best position to preserve value.
• Market testing for a third party purchaser was unlikely to preserve client relationships or attract a better deal for the Company and its creditors.
• Stable handover of contracts, employees etc
• Employees retained by the purchaser with relating liabilities transferred.
• Property taken on by purchaser thereby removing Landlord claims against the Company.
• Dividend to creditors maximised.

After a detailed review of the asset base, in particular Work In Progress, consultation with key creditors, including HM Revenue & Customs, and lengthy negotiation, Greg Whitehead of Northpoint was appointed Administrator.  Shortly after a sale of the Company’s business and assets to the new company formed by management was completed.  This process was later formally ratified by the creditors.

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We have a portfolio of IVA cases.  These are mostly “consumer” IVAs for employed individuals and couples.  Typical unsecured debts from credit cards, store cards and loans total between £25,000 to £100,000.  The typical repayment to creditors from our IVAs is in the range 30p to 60p in the pound with contributions coming from a mix of monthly contributions over 60 months and a future lump sum contribution from equity in property.  However, not all IVA’s fall into this category and the following case shows that an IVA is a flexible procedure that can be used in many circumstances.

Ms L M Baine

Ms Baine was divorced from her husband in June 2003 following a protracted process.  She had already left the family home with her two children and found rented accommodation.  At that stage she had about £20,000 of credit card debts.

As part of the divorce settlement the Court ordered that she was to be paid £40,000 from the matrimonial home either through her former husband purchasing her interest or from a sale of the house.

Ms Baine was working full time for HM Revenue & Customs in an administration role.  However, the financial burden of leaving the family home, setting up with her two children in rented accommodation and meeting living costs on her own, all during a very stressful time, resulted in Ms B running up further debt.  Over 12 to 18 months her total debt increased from £20,000 to £65,000.

Ms Baine had hoped to deal with her debts when she received the money from her property as part of the divorce settlement.  However, due to her husband ignoring demands and generally stalling the sale process it was clear the money from the property was going to take time and in any event she realised that even after she received her money it would not be enough for her to regain control of her debt situation.

Ms Baine was referred to Northpoint by a family friend who worked for a large accountancy firm.  After meeting and discussing all the options it was agreed that an Individual Voluntary Arrangement would be an effective tool to stabilise the position and put a plan in place to remove the £65,000 of debts once and for all.

The basis for the IVA Proposal to creditors was that Ms B would agree that when the money from the house was sold it would be paid in full to the IVA Supervisor to be shared amongst the creditors at the rate of 60p in the pound in full settlement of all debts.  There was no monthly contribution proposed as Ms B simply couldn’t afford one.

Greg Whitehead was appointed as Nominee of the IVA and became its Supervisor when creditors approved Ms Baine’s Proposal.  This instantly took all creditor pressure away from Ms Baine.

It still took nearly a year for Ms Baine’s former husband to engage in the process although he eventually bought out Ms Baine’s interest in the house.  This was only after significant pressure and after we had to obtain creditors agreement to accept a smaller return due to Mr Baine being unable to raise the full £40,000 although we did get this agreement from the creditors.

After creditors received their payment from the IVA and the IVA was concluded Ms Baine was able to move her life forward completely debt free.  The whole process lasted 18 months.

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Greg Whitehead has acted as Trustee in Bankruptcy to many individuals. Most bankruptcies are “consumer” cases where members of the public with significant personal debt have made themselves bankrupt or have being made bankrupt by a creditor. Typically, these cases involve similar issues such as investigating the bankrupt’s affairs, realising assets (interest in property, investments, and surplus income), pursuing legal claims, agreeing creditor claims and distributing dividends.

Occasionally, more complex cases arise with issues that are not typical and require a broader range of expertise and investigation. The case summarised below falls in this category.

Mr S Snaith

Greg Whitehead was appointed Trustee in Bankruptcy of Mr Snaith in 2005 by the Secretary of State through the Official Receiver. Mr Snaith was made bankrupt by HM Revenue & Customs (“HMRC”) in relation to significant unpaid personal taxes.

Before his bankruptcy in 2003 Mr Snaith had been convicted and imprisoned for offences in relation to the illegal importation and sale of alcohol and tobacco. In connection with this conviction and Mr Snaith’s failure to provide a reasonable explanation to support his ownership of various personal assets the Assets Recovery Agency (“ARA”)* appointed a Receiver** over Mr Snaith’s assets including cash at bank, investments and properties.

It was unclear at the time of the Trustee’s appointment whether he would have a higher authority over the seized assets than the Receiver appointed by the ARA.

Following dialogue between the Trustee, his solicitors and the ARA it was established that the Trustee did have authority over the ARA Receiver. This resulted in the Receiver being discharged and all assets released to the Trustee. Over many months the cash at Bank, Investments and Properties were all realised by the Trustee.

During his investigations the Trustee established that at the time of Mr Smaith’s trial bail monies of up to £60,000 had been paid into Court. Several courts had been involved in Mr Snaith’s case and it took many months of correspondence and visits to Newcastle upon Tyne and Sunderland Courts and, finally, extensive correspondence with the Treasury in London before the bail monies were recovered and paid into the bankruptcy estate.

Total realisations in the Bankruptcy were over £200,000 and the dividend return to creditors was £70p in the pound.

* A Government Agency that investigates and prevents criminals retaining proceeds of crime.

** An insolvency practitioner appointed to collect in and realise assets subject to ARA proceedings.

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