The battle over Park First continues with the current administrators, Smith & Williamson, trying to force through a CVA, whilst investors and investor representatives (e.g Quantuma LLP and Dow Schofield Watts) are seeking to liquidate the assets and recover the missing funds from wherever they have ended up. The question is what is best for investors – CVA or liquidation ?
Smith & Williamson (“S&W”), the administration firm appointed by the Park First companies, has been to court to apply for an extension of the time allowed for them to hold a further meeting of creditors.
The new meeting of creditors will be held on the 25th November 2019. Investors will once again be asked to consider the S&W proposals. These proposals allow for the companies to enter into a CVA, giving control of the businesses back to the directors. This is despite there still being no clarification from S&W as to what has happened to more than £115m of investor monies.
S&W released a circular to creditors on 9 October 2019 confirming the meeting date and set out their view of the proposed modifications to the S&W proposals. These modifications were submitted on behalf of many investors. The modifications were for the companies to enter into liquidation and for liquidators to be appointed. The Administrators (S&W) stated in their circular to creditors that they believed a liquidation was not the best outcome for investors.
This view is heavily disputed by parties acting on behalf of investors. They claim a liquidation with new independent insolvency practitioners appointed as liquidators is the best outcome for investors for the following reasons:
- S&W has historically acted for the companies in providing financial advice and has received significant fees for this work. There is a question mark over their impartiality in this matter;
- S&W were appointed by the directors. In circumstances where thousands of individual investors have invested hundreds of millions of pounds into an illegal investment scheme and the FCA have intervened with allegations of impropriety on the part of the directors, the administration of these companies has to be conducted in an entirely open manner and with the investors’ and other creditors’ full knowledge and consent. They claim to be aware of numerous instances where the Administrators have failed to respond to investors queries or have stated that they do not intend to respond to the queries.
- There is strong evidence to suggest that the directors have been guilty of wrongdoing whilst trading the companies. Large sums of investors’ money may have been transferred out of the companies to directors or connected companies. This needs to be investigated by an independent liquidator and action taken. A Supervisor (the official term for the Insolvency Practitioner who controls the CVA process which in this case is S&W), does not have powers to clawback assets and monies for the benefit of investors. This has not been made clear to investors by S&W.
- A CVA is not appropriate in this instance due to the investigations into the directors’ conduct that are clearly required. The FCA confirmed on 17 October 2019 that they are taking action against the management and connected companies for compensation and also injunctions so that those individuals cannot act in this capacity again. S&W have not confirmed how this affects their plans to issue a CVA proposal. See this link to the FCA announcement
- The Administrators have not provided full and frank disclosure to creditors with regard to the £32m currently held in an escrow account which they have wrongly stated is only available in a CVA. The FCA have confirmed to both creditors and investor representatives that this is not the case and the funds would be available in a liquidation, subject to a court order being granted. S&W misled investors and has not made any effort to correct the error.
- In a CVA the car parks would not be sold for the benefit of investors, they would remain under the control of the existing directors. In a liquidation they would be sold and the proceeds available for distribution to investors.
- A CVA hands back control of the Company to the directors. A liquidation ensures a thorough investigation into the conduct of the directors and the directors have no capacity to continue to trade.
- Administrators have to believe that a statutory objective is capable of being achieved (this is a legal requirement) otherwise an administration is inappropriate. As a CVA does not appear to be viable there is no reason for the Companies to remain in administration. By remaining in administration significant costs are being incurred to the detriment to creditors. Those costs are predominantly for the services of S&W for which there appears to be no benefit to creditors. No detailed alternative to a CVA has been suggested by the Administrators. The Administrators’ proposals failed to provide a balanced and detailed appraisal of the position and the options available to investors.
- S&W has failed to send a list of creditors names and addresses with the proposals. This is a legal requirement and they have not provided any valid reason for failing to provide this. Despite numerous requests from investors and investor representatives the Administrators are refusing to supply the list. The natural conclusion is that this has been done to make it more difficult for creditors to form working groups and be contacted by professional advisers who may be able to assist them.
S&W also failed to present the proposed modifications adequately to the meeting of creditors on 1 October 2019. An appointed liquidator can not only investigate the conduct of the directors, but can also investigate the conduct and actions of any former Administrators.
Due to the reasons set out above and there being no other proposed solution we have come to the conclusion that a liquidation is the best outcome for investors. It allows for recovery actions against the parties responsible for the huge black hole in the companies’ accounts.
S&W has confirmed that it has made an application to court (hearing date is set for 4 November 2019) for directions on how creditors’ claims are valued and treated for voting purposes and for directions confirming that they are not required to release a creditors’ list.
Investors should be very concerned about the content of these applications and the impact they have on the investors’ ability to claim for any balance owed to them.
We are working with Quantuma, Dow Schofield Watts and legal advisors on how to ensure investors have a voice at the hearing on 4 November and ensure the rights of investors are not prejudiced by any actions of the administrators.
A further update on the proposed action relating to the court hearing on the 4th November will be provided soon.
We are aware that the directors of the Companies are approaching investors by telephone and email attempting to persuade them to accept the administrators’ proposals. The directors have no power to do so and we encourage you to provide details of any such approach to Quantuma or Dow Schofield Watts (emails below).
If any investor has not already done so we recommend that you make direct contact with either firstname.lastname@example.org or email@example.com. They will be able to clarify any points in respect of the rights of Park First investors.
To view our previous article on Park First please click here