RobertL18C wrote:
God bless the USA where a lot of mid sized businesses (and large ones) are resurrected through the Chapter 11 process.
It’s not all milk and honey. In their Chapter 11 proceedings Van’s have blocked the formation of an unsecured creditors committee and engaged in various other practices so as to maximise the degree to which creditors are shafted, chief among them failing to ship any product at all for quite a long time prior to the Ch11 filing whilst rapaciously collecting payment in full. They actually included in their court filings that these payment collections had been ‘accidental’, which was hilarious, but I suppose they needed to lay a cover story before too many customers told the court that they paid in full months ago and received nothing.
I cannot help but feel that point would have got more attention from the court in the UK. Listening to the Van’s court proceedings, one gets an impression of judges, lawyers and ‘restructuring experts’ playing a cosy little game around the elephants in the room. Both systems of bankruptcy work on paper, both are ruined by the sort of plausibly-deniable corruption and nest-feathering you see in both the Van’s and the Tayside cases. The fees being charged by the ‘restructuring experts’ (I guess the equivalent of administrators) in the Van’s case are equally eye-watering and likewise paid before anyone else.
Probably in all of Europe. The system works against businesses which involve tangible assets.
This is why FTOs will continue to go bust with millions disappearing: it is dead easy to do. You lease the planes (presumably some don’t because leasing is expensive), premises are rented, the ground school is money for old rope, you rent out DA42 time with a huge margin (~2x over cost), you use the cash which the parents pour in to fund the cash flow, and when it goes belly up you (knowing this well in advance) stick some charges in to rank as a secured creditor, and if you are a big creditor you can be the one who appoints the friendly administrator whose primary job is to satisfy the charges in the correct order 
The underlying problem is this and the stupidity of the airlines in wanting an army of very uniform sausages.
May be a reason for the relevant historic business decline in the UK? If these administration proceedings are pre destined to fail and be carcasses for administrators to feed off, then arguably risk premiums for business risk, credit or equity, will be structurally higher.
God bless the USA where a lot of mid sized businesses (and large ones) are resurrected through the Chapter 11 process.
Now if there were any MP who had an interest in improving this state of affairs, that would be a godsend. As the law profession tends to produce the most MPs, I fear there may not be much appetite for judicial/procedural reform in the area. :(
Yes that whole admin business is bent, crooked, dishonest.
I still remember, in 1979, driving to London (those were the days!!) and with the Datsun 100A F2 parked on the pavement in Soho in front of a “gay sex toys and publications” shop, and me hoping nobody recognised me, going into a vast underground basement under the said shop, stacked up to the ceiling with £1000 hard disks etc, operated by an Administrator, and me arguing with the sleazy little sh*it sitting in the chair and about to fall off it due to his stomach overhang, that “this pile of circuit boards” is actually mine, never paid for, so can I please take them away, and him saying “with no serial numbers, and your invoice not showing serial numbers, you can’t prove it” even though they were fully custom circuits, and then smiling while offering to sell them back to me for £x (where x was about 50% of what we were supposed to be paid for them). I told him to stick them where it is warm and dark.
An Admin is judge, jury and executioner. He is generally appointed by the biggest creditor /charge holder and all kinds of allegations are not uncommon.
It is bad law. With centuries’ old tradition of lawmaking, the UK doesn’t have many truly bad laws but this is one such. The counter argument is that the institution of a Ltd Co, and the concept of the Corporate Veil., must be protected, otherwise free enterprise would die. It is easier today to get disqualified as a Director but hey you just need a few sons or daughters to front your next venture
A friend of mine had a terrible experience with administrators. His partner had a business go bust over a relatively small mortgage payment (which they couldn’t afford at the time) despite having large equity in the property. Little did they know, administrators charged over 300k for a simple liquidation of a 600k property, which happened to be almost exactly the equity. It’s really sad and should be illegal really. They could have easily sold the property and not gone bust…
Also this reminds me of Lehman brothers liquidators…… anyone fancy a guess how much they charged !
Peter wrote:
I was paying £750/hr plus VAT to a top-level accountant in 1991. £515/hr is not a “street corner accountant” but is “quite cheap”.These administrator vermin always line their pockets.
Since 1978, I have never seen unsecured creditors get as much as 1% payout.
It is sad, especially this not being widely known or used.
I recall a Scottish customer of mine going under back in 2007, my company was the second biggest creditor at the time hence I was offered a seat on the creditor’s committee; the biggest creditor was apparently the German mother company which was supplying them with raw materials and initially we were expecting to maybe get 8p on the pound. However I came across a document which showed underhand dealings from the mother company and raised it during a committee meeting. The net result: The mother company dropped all claims they had lodged, the payout suddenly rose significantly.
What they had done was closed one UK site (site A) using finance from the second site (Site B – which owed me the cash). Why they would allow site B to fund the payoffs to the employees of site A and these payments be declared as a “loan” from Site B to Site A even though site A was ceasing trading and could never hope to repay the funds was beyond me. Worse, they sold off assets of site A and claimed the payments received were then taken to repay debts owed to a German creditor instead of repaying Site B’s debt.
However, these debts were actually debts issued in the name of the mother company and had never been issued with respect site A, nor had they benefited anything other than the German head office. The financial director thought that dumb brits wouldn’t read through 320 pages of financial reports written in German on how they had financed the group….
When this came out, there was outrage at what this company was doing. Interestingly enough, removing the amount that the mother company was claiming and having the debt which Site B has loaned on behalf of Site A repaid, there was enough mass in there to pay off everyone’s debt and allow the company to continue trading. But – and here’s the BUT – once payment for administrators were calculated, the amount dropped to under 50%…..
“Interpath Advisory” sounds like a made-up BS name and indeed their website is 100% corporate BS. But clearly they had the “connections” enabling them to extract what was left at the bottom of the barrel.
The spectacularly late filing of the charges is hilarious and it amazes me that it worked. Well, one reportedly did while the other reportedly didn’t.
In the USA these fees have to be agreed in court, and they rank at the top of the unsecured creditors. Administration seems to lack the paraphernalia of US bankruptcy processes, but also seems to be somewhat open to informal practices with a whiff of small town rough justice about it.
Given the size and relative simplicity of this estate these fees seem disproportionate. In Chapter 9 (liquidation) they would be contested. The unsecured creditors’ committee in the USA would in effect be promoted to the governance of the process, as long as valid secured liens are respected. Here the unsecureds don’t appear to be marshalled into a proper class with a voice in the process.
I was paying £750/hr plus VAT to a top-level accountant in 1991. £515/hr is not a “street corner accountant” but is “quite cheap”.
These administrator vermin always line their pockets.
Since 1978, I have never seen unsecured creditors get as much as 1% payout.
It is sad, especially this not being widely known or used.
£515/hr is ludicrous.
