Shepherd Cox Investigation
The Shepherd Cox investigation is gathering pace as more information comes to light. Last month, six Shepherd Cox companies were placed into administration on the grounds of insolvency. You can read our previous article here.
We raised a number of questions including:
1. The directors of Shepherd Cox Ltd (not one of the companies in administration) claimed that they had taken legal advice on the schemes prior to selling the hotel rooms. We asked why the advice was not submitted in evidence at the hearing. The directors answered our query by saying that they were advised not to make the advice public in court because “it is privileged”. The problem for the directors now is that if they are telling the truth then that advice was used to sell bedrooms in hotels which are now under the control of an administrator. The administrator has a legal right to a copy of that advice and we’ve no doubt he will demand it. So there is a good chance that very soon it will be clear to investors whether or not the directors were telling the truth.
2. We also questioned how a 48-bedroom hotel bought by Shepherd Cox in 2016 and which has been described for the last four years as a 48-bedroom hotel, could sell 57 bedrooms to investors. Shepherd Cox has answered that too (well, sort of….) They’ve written to investors with the following statement:
“Safe Or Scam also imply that a Hartlepool investor was unaware that a room they were buying required refurbishment. We can confirm that a retention was held back by the buyer’s solicitor in respect of this room. We also have an email from the room buyer asking us for an update on the refurbishment timeframe”.
We have more than one client who bought one of the nine ghost bedrooms in August 2016. The directors said ”a retention was held back by the buyer’s solicitor”. In building terms a retention is normally a small amount to cover minor snagging faults such as touching up the paintwork or fixing a loose electrical fitting. We’re willing to bet that 95% of the money was released to Shepherd Cox by the solicitor as soon as it was received. The money would have allowed them to construct the rooms and only a very small amount would have been held back. We also note that they use the term “refurbishment” twice. Staff at the hotel have advised us that these rooms weren’t in need of refurbishment. They were in need of construction because they were cupboards and an old kitchen. So to make a hotel bedroom suitable for guests, nine new en-suite bathrooms would need to be built. They were included in the plans submitted to the council in 2016. Staff have told us that these rooms are still as they were in 2016 i.e cupboards and an old kitchen. Nothing has been done. We will know soon enough because we should be getting pictures through in the next couple of weeks which we will publish.
Perhaps the most foolish thing the directors did was to write to investors last week seeking to put blame onto the administrators who have only just taken office. Statements like:
“As of last Thursday the administrator became responsible for the payment of rents to all room buyers including yours. You might want to confirm that they intend to pay it to you”
The administrator wrote a strong letter to investors copied to Shepherd Cox which gave a brief overview of the Shepherd Cox investigation to date and included the passages below:
The Companies, under the management of its directors, had fallen behind with rental payments to investors and was held by the court to be insolvent, hence the making of the administration orders appointing the Joint Administrators.
On appointment, there were minimal funds in the bank accounts….. [our bold]
The majority of the funds received from investors were not paid into the Companies but were paid to group companies…..[our bold]
Had the directors of the Companies caused the funds raised from the sale of hotel rooms and unsecured loans to be paid to the Companies, it is likely that there would have been significant funds available to keep the hotels open and continuing to trade…… [our bold]
Since purchase it appears that the hotels have always traded at a loss…..[our bold]
The fact the administrator has identified that the majority of the funds were paid into group companies means those funds can be clawed back from those companies. They are debts owed to the six companies in administration. It’s now entirely possible that many other Shepherd Cox companies will begin to default on their debts when this money is called back.
For us the most interesting part of the exchange was this statement made by the Shepherd Cox directors in their letter to investors:
The value of your investment is based on the income the bedroom generates….. [our bold]
That’s an admission that the rooms were not sold at their true market value, but at a manufactured price dreamt up by the directors. The administrator’s statement that “Since purchase it appears that the hotels have always traded at a loss” suggests that the rooms had no real value because whatever income they generated was wiped out by the costs of running the hotel. None of the hotels ever made a profit from the moment Shepherd Cox took them over.
None of this has stopped Lee Bramzell from branching out into what would appear to be new ventures . It appears to us that he’s accepted the Shepherd Cox brand is toxic and is planning to move on. He’s incorporated five new companies in the last three weeks. They are:
1. Festival Hotels Group Limited;
2. Festival Hotels (Bournemouth) Ltd;
3. Festival Hotels (Stratford) Ltd;
4. Festival Hotels (Bath) Ltd;
5. Festival Hotels Group Team Ltd.
The Shepherd Cox investigation covered six hotels. All of them were loss-making while Lee Bramzell, Nick Carlile, Adam Stanborough and Daniel Bowden were in control. That’s not very impressive on a so-called hoteliers CV.
We’ll be very interested to see who is financing these new ventures just in case it turns out to be investors’ money. Is there really a lender willing to back Lee Bramzell’s new venture ?
To view our next article on the Shepherd Cox Investigation please click here.