Company worried about loans and shareholders implications

20 September 2017

As we discussed the directors are in control of this process of assessment of the rescue and insolvency options and making decisions about the company’s future. The company is insolvent and cannot meet its creditors liabilities as and when they fall due. There are two directors at Companies House and they must make decisions that maximise the interests of the whole group of creditors, be they secured or unsecured creditors. They cannot prefer one creditor, group or shareholder to satisfy their demands.

I very quickly took you through the options including compulsory liquidation, company voluntary arrangement, administration and liquidation. I would like to introduce my colleague Gary Weber who will be happy to arrange a meeting with you to take the board through the options in more detail. Could you please provide me with an up-to-date MI pack so that Gary and I can assess the balance sheet before that meeting. As I say I am away on annual leave and so cannot attend this initial meeting.

I like the brand and I like the good will of the business brand and I believe that (based on the information you have provided) and with some cost-cutting, attention to overhead and margins that this business could be viable. Therefore I think we need to explore the company voluntary arrangement option in more detail at that meeting.

I understand that some of the shareholders and unsecured investors/lenders have different views. One is suggesting you sell your equity for £1 and walk away. You are under no obligation to sell your shares for any value. Nor do you need to involve the shareholders in any board meetings when the company is in this insolvent position. We do not want to appear to be adversarial towards the stakeholders, but  clearly, they are not directors. I have 23 years experience in dealing with these situations and the accurate legally correct approach is for the board to drive the process when the company is insolvent, not the shareholders or unsecured creditors.

In broad brush stroke I have set out a strategy for a quick CVA process over the next 6 to 7 weeks, KSA will control the creditors and liaise with loan note holders and have an open dialogue with them, we then have the business valued and hived up to "XYZ Limited" (to be formed when appropriate).

This company will have a clean balance sheet and the shareholding is to be decided between you, and the other shareholders of the current company. The group company will pay “oldco” for the value of the goodwill and business over a period of time and this will fund the dividend for CVA bound creditors over time. All of this to be agreed in strategy meetings leading up to the finalisation of any CVA proposal. Gary Weber and I both have sector experience and I believe we can add significant value in funding and management guidance of the Newco through our sister company Cheswick Capital.

I hope to meet you upon my return, but meanwhile I will pass you onto our very experienced London regional manager Gary Weber – he is on 07739 325008.

NB: initial meeting and the strategy report is free.

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