joint administrators’ proposals for achieving the purpose ... · e.j. badekabiner (uk) limited...

E.J. Badekabiner (UK) LimitedHigh Court of Justice, Newcastle District Registry

Case No. 2254 of 2010

Joint Administrators’ proposals for achieving thepurpose of the Administration

www.pwc.co.uk/ejbadekabinerPricewaterhousecoopers LLP

Telephone +44 (0) 113 289 4809

E.J. Badekabiner (UK) Limited – in AdministrationHigh Court of Justice, Newcastle District Registry

Case No. 2254 of 2010


26 November 2010

www.pwc.co.uk/ejbadekabinerPricewaterhousecoopers LLP

Benson House33 Wellington Street

LeedsLS1 4JP

Telephone +44 (0) 113 289 4809Fax +44 (0) 113 289 4460

www.pwc.com/uk

in AdministrationHigh Court of Justice, Newcastle District Registry


Contents

E.J. Badekabiner (UK) Limited (in Administration) – Joint Administrators’ proposals forachieving the purpose of the Administration

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SectionPage(s)

1 Purpose of this document 3

2 The Administrators’ statement of proposals: -

a. Brief history of the Company and summary of the Administrators’actions to date

4 - 7

b. Proposals for achieving the purpose of Administration 8 - 9

c. Statement of affairs 10

d. Statutory and other information 11

3 Receipts and payments account 12

Appendices

A Pre-Administration costs 13

B Copy of the statement of affairs 14

Abbreviations used in this report:

“the Company” – E.J. Badekabiner (UK) Limited“the Administrators” – Mark Loftus and Ian Green“SIP 9” – Statement of Insolvency Practice No.9 – Remuneration of Insolvency Office

Holders“SIP13” – Statement of Insolvency Practice No.13 – Acquisition of Assets of Insolvent

Companies by Directors“Sch.B1 IA86” – Schedule B1 the Insolvency Act 1986“IR86” – the Insolvency Rules 1986“the Bank” – Nordea Bank Finland Plc“PwC” – PricewaterhouseCoopers LLP“GT” – Galliford Try Construction Limited

2. The Administrators’ statement of proposals


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a. Brief history and summary of the Administrators’ actions to date

Background

The EJ Badekabiner Group has produced pre-engineered bathrooms since 1963 for the Europeanconstruction market from head offices based in Denmark. It has had a UK sales presence since 1990 andestablished the manufacturing site of EJ Badekabiner (UK) Limited in Cramlington in 2003. Bathroom unitsare completed in-house with a bespoke room being delivered to the construction site ready for installation byeither the Company or the customer themselves.

Since its establishment, operational inefficiencies have meant that the Company has struggled to establishrecurring profitability and losses have historically been funded by its Danish holding company. A group re-organisation was implemented in November 2009 to address these issues and production was transferredfrom Denmark to the UK to better utilise the production facilities.

The circumstances giving rise to the Administrators’ appointment

In mid 2009 a new Managing Director was appointed together with a new management team consisting ofHeads of Finance, Production and Purchasing. The new team were tasked with implementing a turnaroundplan, to establish profitability and grow the business.

However, continued disappointing trading performance led to an adverse effect on the liquidity of theCompany’s business. The Company ceased trading in early October 2010 due to having insufficient cash topay wages and all non clerical employees were sent home.

Mark Loftus and Ian Green were appointed as Administrators on 5 October 2010.

The manner in which the Company’s affairs and business have been managed and financed

An initial review of management accounts for the six month period prior to the Administrators’ appointmentshowed that whilst the Company had been loss making, there were opportunities to streamline the businessmaking it viable as a going concern if a sale could be achieved in the immediate short term.

In order to explore the possibility of a going concern sale, the Administrators secured a contract withGalliford Try (“GT”) to continue production of their pods resulting in the receipt of £392,000 to fund a twoweek period and a further £420,000 for the third and fourth weeks of trading. The contract was effectivefrom 15 October 2010. Following payment of all trading costs and associated professional fees, any balancewill be transferred back to GT.

The purpose of securing this contract was to re-establish the going concern status of the Company both toassist in securing the sale of the property and to avoid significant holding costs and also to provide scope tomaximise book debt realisations.

The GT contract resulted in 91 employees being retained to assist the Administrators in the short term and£61,000 of the total funding secured was in relation to arrears of wages which reduced employee preferentialclaims against the Company. Unfortunately, the remaining 101 staff have been made redundant by theAdministrators.

An intensive marketing strategy was implemented during the four week trading period with over 40 partieseither contacted or expressing an interest in the business. One formal offer was received from GT on Friday29 October 2010 in respect of the business and assets. A new company, Continental Shelf 515 Limited was setup by GT as a vehicle to acquire the Company’s business and assets. Following discussions with our agents,an offer from Continental Shelf 515 Limited of £1.42 million was accepted and the sale was completed on 12November 2010. The sale represented the best overall value compared to the break-up value of the assets andexcluded the Company’s debtor book.

The sale also excluded the Company’s stock in relation to all non-GT contracts and the Administrators will beauctioning the stock in the coming weeks. Any party interested in acquiring the stock should contact HalimaNawaz on 0113 289 4809.



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The following table summarises the consideration received from the sale of the Company’s assets:

£

Plant and Machinery 7 9,998

Property 1 ,320,000

Business 1

Goodwill 1

Intellectual Property 1

Stock 20,000

T otal consideration 1,420,001

The Company’s debtors have a book value of £2.36 million at the date of appointment, with an estimated torealise value per the Company Director’s statement of affairs of £0.76 million. The Administrators haveengaged Driver Consult Limited (“Driver”) to review the Company’s debtors, which are predominantly of acontractual nature. Following the Administrator’s appointment certain contracts remain unfulfilled whichobviously impacts the collectability of debts due under these contracts. Initial advice from Drivers suggestscollections from the debts are difficult to estimate at this stage.

The Administrators anticipate that debt collection may take a number of months to finalise and creditors willbe updated on the progress of debt collection in the Administrators’ first report in April 2011.

Pre-Administration costs

Prior to their appointment, the Administrators incurred time costs totalling £23,675.75 in relation to placingthe Company into Administration. Specifically, time was spent by the Administrators and their staff on thefollowing matters:

Statutory planning work in relation to the Administration appointment, including internalcompliance and risk procedures;Reviewing management information and the Company’s former trading position to establish whetheror not it was viable to recommence trading and whether this would ultimately improve the outcomefor the creditors (by means of enabling a going concern sale or otherwise), and to establish thepotential funding requirement for such trading. This needed to be considered before the Companywent into Administration to protect the Company’s creditors from the risks associated withcontinuing to trade in Administration;Discussions with the Bank and the Company’s director regarding the appointment;Planning for the appointment, including ensuring that assets would be immediately safeguardedwhen the Administration was initially announced; andAll necessary steps to be able to give the statutory confirmation that the objectives of theAdministration are reasonably likely to be achieved.

It was necessary for time to be spent on these matters in order that the Company could be placed intoAdministration in an orderly manner and thus preserving the value of the Company’s assets for the benefit ofcreditors.

No costs have been paid to the Administrators’ firm prior to appointment in relation to the Administration,nor was any agreement made with any party for these costs to be paid.

The amount of unpaid fees is set out at Appendix A. Payment of unpaid pre-Administration costs as anexpense of the Administration is subject to approval in the same manner as the Administrators’remuneration and is separate from approval of the Administrators’ proposals. In this case, as theAdministrators have stated that they think that the Company has insufficient property to enable adistribution to be made to non-preferential unsecured creditors; it will be for the secured and preferentialcreditors to determine these.



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Connected party transactions

In consideration of SIP 13, the Administrators have a duty to disclose the acquisition of Company assets byconnected parties such as Directors or other persons connected with the Company.

The Administrators are aware of one connected party transaction involving the Company and its soledirector, Niels Sandahl.

Prior to the Administrators appointment, Niels Sandahl acquired a Company car in lieu of salary due fromthe Company. The Administrators have consulted solicitors on the transaction and have been advised that nofurther action is necessary.

The Administrators are not aware of any further transactions between the Company and Niels Sandahl andno further disclosures were made in the pre-appointment audited accounts.

Objective of the Administration

The objective of the Administration in relation to the Company is primarily to achieve a better result for theCompany’s creditors as a whole than would be likely if the Company were wound up (without first being inAdministration).

In order to achieve this objective, the Administrators secured funding in order to recommence trading of thebusiness and complete a going concern sale to ensure that assets were realised at the maximum valuespossible, for the benefit of all creditors. Furthermore, the payment of employees arrears of wages to facilitatetrading has mitigated preferential claims against the Company

Dividend prospects

Secured creditor

The Company’s secured lender, Nordea Bank Finland Plc (“Nordea”), was owed in excess of £3.3 million onappointment with key security being in respect of the Company’s land and buildings.

Nordea’s security includes a fixed and floating charge debenture which is cross guaranteed by the Company’sDanish parent company, E.J. Badekabiner A/S, and subsidiary (Kabineselskabet APS).

Based on the proceeds received from the sale of the fixed charge property, the Administrators believe thatNordea is unlikely to recover its lending in full from the Company.

Preferential creditors

The Company’s preferential creditors include amounts owing to employees in respect of unpaid wages andholiday pay.

The payment of arrears of wages in respect of retained employees during the Administrators’ trading periodhas mitigated the level of preferential claims against the Company.

The likelihood of a dividend in relation to the remaining preferential claims is dependent on the final level ofrealisations, from stock and debtors less the associated costs of realisation and administration.

Unsecured creditors

As detailed above, the Administrators have formed the view that the Company has insufficient property toenable a distribution to the unsecured creditors.

The Prescribed Part (Section 176A IA86 and the Insolvency Act 1986 (Prescribed Part) Order 2003) is notthought to apply to this case based on the expected level of floating charge realisations and associated costs.



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It is therefore highly unlikely that there will be any funds available to the Company’sunsecured creditors.

Ending the Administration

The Administrators currently envisage that once the objective of the Administration has been achieved, theAdministration may end in one of the manners set out in Section 2 (b) (vii) of these proposals depending onthe circumstances at that time.



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b. Proposals for achieving the purpose of the Administration

The Administrators make the following proposals for achieving the purpose of Administration.

i) The Administrators will continue to manage and finance the Company’s business, affairs and propertyfrom trading revenues and asset realisations in such a manner as they consider expedient with a view toachieving a better result for the Company’s creditors as a whole than would be likely if the Company werewound up (without first being in Administration).

ii) The Administrators may investigate and, if appropriate, pursue any claims that the Company may haveunder the Companies Act 1985 or IA86 or otherwise. In addition, the Administrators shall do all suchother things and generally exercise all their powers as Administrators as they in their discretion considerdesirable in order to achieve the purpose of the Administration or to protect and preserve the assets ofthe Company or to maximise their realisations or for any other purpose incidental to these proposals.

iii) If the Administrators think that funds will become available for unsecured creditors, the Administratorsmay at their discretion establish in principle the claims of unsecured creditors for adjudication by asubsequent liquidator or supervisor of a company voluntary arrangement / scheme of arrangement andthat the costs of so doing be met as a cost of the Administration as part of the Administrators’remuneration (where the Administrators think there will be sufficient funds for a distribution tounsecured creditors other than by virtue of the prescribed part) or out of the prescribed part as costsassociated with the prescribed part (where the Administrators think that funds will become available tothe unsecured creditors by virtue of the prescribed part but not otherwise).

iv) If the Administrators think that funds will become available for unsecured creditors, the Administratorsmay at their discretion make an application to court for permission to make distributions to unsecuredcreditors in the administration.

v) The Administrators will consult the creditors’ committee, if one is appointed, prior to making anapplication to the court under section 176A(5) IA86 for an order not to distribute the prescribed part tounsecured creditors if the Administrators conclude that the cost of making a distribution would bedisproportionate to the benefits.

vi) The Administrators will consult with the creditors’ committee concerning the necessary steps to extendthe Administration beyond the statutory duration of one year if an extension is considered advantageous.The Administrators shall either apply to the court or seek consent from the appropriate classes ofcreditors for an extension.

vii) The Administrators may use any or a combination of “exit route” strategies available in law in order tobring the Administration to an end, but in this particular instance the Administrators are likely to wish topursue the following options as being the most cost effective and practical in the present circumstances: -

(a) Once all of the assets have been realised and the Administrators have concluded all work withinthe Administration, the Administrators will file a notice under Paragraph 84(1) Sch.B1 IA86 withthe Registrar of Companies, following registration of which the Company will be dissolved threemonths later; or

(b) If, once all asset disposals are complete, the Administrators believe there is a prospect of adistribution to the unsecured creditors, they may apply to the Court to allow the Administratorsto distribute surplus funds. If such permission is given, the Administration will be brought to anend by notice to the Registrar of Companies under Paragraph 84 Sch.B1 IA86, followingregistration of which the Company will be dissolved three months later. If permission is notgranted the Administrators will place the Company into creditors’ voluntary liquidation orotherwise act in accordance with any order of the court; or

(c) If, once all asset disposals are complete, the Administrators believe there is a prospect of adistribution to the unsecured creditors, the Administrators may place the Company intocreditors’ voluntary liquidation. In these circumstances, it is proposed that Mark Loftus and IanDavid Green be appointed as Joint Liquidators and any act required or authorised to be done bythe Joint Liquidators may be done by either or both of them. In accordance with Paragraph 83(7)



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Sch.B1 IA86 and Rule 2.117A(2)(b) IR86, creditors may nominate alternative liquidators,provided that the nomination is made before the proposals are approved; or

(d) The Administrators will apply to court under Paragraph 79 Sch.B1 for the Administration to beended and for the Company to be placed into compulsory liquidation or dissolution.

viii) The Administrators shall be discharged from liability pursuant to Paragraph 98(1) Sch.B1 IA86 inrespect of any action of theirs as Administrators at a time resolved by the secured creditor, or if adistribution has been or may be made to the preferential creditors, at a time resolved by the secured andpreferential creditors or in any case at a time determined by the court.

ix) It is proposed that the Administrators’ fees be fixed under Rule 2.106 of the Insolvency Rules 1986 byreference to the time properly given by the Administrators and the various grades of their staff accordingto their firm’s usual charge out rates for work of this nature and that disbursements for services providedby the Administrators’ own firm (defined as Category 2 disbursements in Statement of InsolvencyPractice No.9) be charged in accordance with the Administrators’ firm’s policy. It will be for the creditors’committee to fix the basis and level of the Administrators’ fees and Category 2 disbursements but if nocommittee is appointed, and as the Administrators have stated that they think that the Company hasinsufficient property to enable a distribution to be made to non-preferential unsecured creditors (otherthan potentially by virtue of Section 176A IA86, it will be for the secured creditor and if applicable, thepreferential creditors to determine these instead. In any event the basis of the Administrators’remuneration and Category 2 disbursements are to be fixed no later than 18 months after the date of theAdministrators’ appointment.



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c. Statement of affairs

A statement of affairs of the Company was delivered to the Administrators on 20 October 2010. Thestatement was signed by Niels Sandahl in his capacity as sole director of the Company.

The Administrators make the following comments on the statement of affairs:

In accordance with the standard format of the statement of affairs, no provision has been made for thecosts of realising the Company’s assets or the costs of the Administration; and

The Administrators have not carried out anything in the nature of an audit on the information.

The following additional comments are made on the statement of affairs of the Company;

In general, the estimated to realise valuations are in excess of the valuations provided by theAdministrators agents. The director’s statement of affairs details the Company’s floating charge assetswith a book value of £6 million to have an estimated to realise value in region of £2 million. At this earlystage in the administration, the administrators and their agents are still exploring the potential realisablevalue of these assets. However, it may be that the director’s statement of affairs is optimistic in this regarddue to the contractual nature of the Company’s debtor’s ledger.

The statement of affairs indicates that the outstanding balance in relation to the mortgage securing theproperty is circa £1.4 million however, based on current information the Administrators believe that thissum is more likely to be in the region of circa £1.7 million.

The statement of affairs in relation to the Company is attached at Appendix B, together with details of thenames, addresses and debts of creditors (including details of any security held).



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d. Statutory and other information

Court details for the Administration: High Court of Justice, Chancery Division, Newcastleupon Tyne District Registry 2254 of 2010

Full name: E.J. Badekabiner (UK) LimitedTrading name: E.J. Badekabiner (UK) LimitedRegistered number: 03814589Registered address: Bassington Drive, Bassington Industrial Estate,

Cramlington, Northumberland, NE23 8ASCompany directors: Mr Niels SandahlCompany secretary: None listed (William Tombs resigned 4 December 2009)Shareholdings held by the directors andsecretary:

Not applicable. The Company is 100% owned by E.J.Badekabiner A/S, a company incorporated in Denmark

Date of the Administration appointment: 5 October 2010Administrators’ names and addresses: Mark Loftus and Ian David Green both of

PricewaterhouseCoopers LLP, Benson House, 33Wellington Street, Leeds, LS1 4JP

Appointor’s / applicant’s name andaddress:

The Director of E.J. Badekabiner (UK) Limited

Objective being pursued by theAdministrators:

Objective (b): Achieving a better result for the company’screditors as a whole than would be likely if the companywere wound up (without first being in Administration)

Division of the Administrators’responsibilities:

In relation to paragraph 100(2) Sch.B1 IA86, the jointadministrators will act jointly and severally so that allfunctions may be exercised by any or all of the jointadministrators

Proposed end of the Administration: DissolutionEstimated dividend for unsecuredcreditors:

Nil

Estimated values of the prescribed partand the company’s net property:

Nil

Whether and why the Administratorsintend to apply to court under Section176A(5) IA86:

Not applicable

The European Regulation on InsolvencyProceedings (Council Regulation(EC) No.1346/2000 of 29 May 2000):

The European Regulation on Insolvency Proceedingsapplies to this Administration and the proceedings aremain proceedings

Any other information which theAdministrators think necessary to enablecreditors to decide whether or not to votefor adoption of the proposals:

Not applicable

3. Receipts and payments account


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Administrators' receipts and payments account from 5 October 2010 to 24 November 2010

FixedCharge

(£)

FloatingCharge

(£)

Total

(£)

Directors'statementof affairs

(£)

Receipts

Intangible assets - 3 3 -

Freehold property 1,320,000 - 1,320,000 1,474,050

Net stock realisations - 14,757 14,757 1,059,074

Plant & Machinery - 79,998 79,998 75,000

Cash in hand - 46 46 -

Book debts - 159 159 761,661

Refunds - 35,078 35,078 -

Funding from third parties/chargeholder - 812,000 812,000 -

1,320,000 942,041 2,262,041 3,369,785

Payments

Distribution to secured creditor 1,270,000 - 1,270,000

Legal fees 10,000 9,447 19,447

Net wages - 119,251 119,251

PAYE & NIC - 27,676 27,676

Pension contributions - 483 483

Repairs and maintenance - 2,778 2,778

Security - 251 251

Pre-appointment wages - 41,989 41,989

Employee travel and subsistence - 1,402 1,402

Statutory advertising - 204 204

Non-statutory advertising - 1,574 1,574

Purchases - 27,023 27,023

Bank charges - 1,155 1,155

1,280,000 233,233 1,513,233

VAT balance (1,750) 135,008 133,258

Balance in hand 38,250 843,816 882,066

Appendix A Pre-Administration costs


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The following are costs incurred prior to the appointment of Administrators but with a view to the Companyentering Administration. It is proposed that the unpaid costs will be paid as an expense of theAdministration. None of these costs are part of the proposals subject to approval under paragraph 53 Sch.B1IA86.

Unpaid amount(£)

Paid amount(£)

Payment made by(if applicable)

Fees charged by the Administrators 23,675 Nil Not applicableExpenses incurred by the Administrators- Legal advice in pre appointment period- Solicitors preparation of documents forfiling in court

4841,621

NilNil

Not applicable

Fees charged by other persons qualifiedto act as an insolvency practitioner

Nil Nil Not applicable

Expenses charged by other personsqualified to act as an insolvencypractitioner

Nil Nil Not applicable

Total 25,780 Nil

Appendix B Copy of the statement of affairs


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