I have read through the Administrator’s Proposals (APs) & have written a summary of the main points, as I understand them, in layman’s terms.
Annex 2.
10. States that FS procedures did not conform to their T&Cs, company & client money was mixed up and that the status of some of the assets is lacking in clarity as to “who owns what”.
11. States that it is unclear whether or not effective trusts were set up for the loans & who is properly entitled to the realisations from those trusts.
12) States that only the last 5 loans had trusts set up properly.
Due to the above uncertainties, the administrators intend to request their solicitors instruct Leading Counsel to provide the Advice as to how realised assets (mainly our money) are distributed amongst Investors and Creditors and also how fees are allocated (APs 5.3)
After receiving the Advice, if it is “sufficiently clear” the Creditor’s Committee (CC) will get the the opportunity to accept it (APs 5.5) or reject it (APs 5.6) in which case the administrators will make a “Direction Application” to the Courts for them to decide the outcome. If the Advice is not “sufficiently clear” the administrators will also make a “Direction Application” to the Courts for them to decide the outcome. (APs 5.6)
Now, obviously the hope here is that, assuming the problem with the trusts is a clerical or wording issue, Leading Counsel will decide that the intention was that the trusts were in favour of the Investors & advise likewise. If, however, the Advice goes against Investors and we have not managed to secure control of the CC, a Creditor biased CC would accept the advice, in which case Investor’s claims would be reduced to that of unsecured creditors. As unsecured creditors only a small proportion of our claims (up to £600k) would be paid (from the "Prescribed Part") before that of the holders of floating charges (to the value of £3m) over the Company (FS), them being resigned Directors Rajinder Kumar & Vijay Gandhi (via his company EZ Invest Limited)(APs 2.20). This would obviously stink and I assume all of you will want to stop this happening! Finally, our recoveries would be further reduced, due to the fact the other unsecured creditors (circa £1m), would receive a pro-rata part of what was left.
If however FSAG managed to secure control of the CC, we could reject the Advice given by Leading Counsel and there would be one more chance of getting the “right answer” via the “Direction Application” to the Courts, at this juncture, we would also get the chance to have an input if we retain counsel and request CG&co to also allow us to present our case in Court. If they refused, it would strengthen our case at appeal.
The administrators propose to make a fixed charge of £25k +VAT (APs 8.3), plus 2.5% +VAT for their involvement in recovering “defaulted” loans & 0.125% in respect of current loans (APs 8.5). It is proposed that the % fees are taken directly from the funds recovered from loans. These fees would only cover administrator’s admin fees for dealing with the loans, with disbursements and direct costs also added. Where solicitors & receivers are also required in order to realise recoveries, these will also be taken from the recoveries (before the administrators take their %, one would hope!)
Some of the Director’s loan accounts are overdrawn, with the remaining director being unsure as to whether or not some of those directors have funds to repay or not.
Richard Luxmore's assets have been frozen.
I am assuming that the £7.4m figure for “work in progress” (in the "Statement of Affairs") is the book value for FS’ fees due on uncompleted loans, which is why its actual value is noted as “uncertain”.
Reading the APs you would deduce that the administrators seem to have accepted that investors (lenders) can now be considered for positions on the CC:
1.13 States that the CC will be made up of Investors as well as creditors.
5.2 States that the committee will be made up of up to 5 members and that at least 1 investor & 1 creditor.
5.2 also states that the CC will be formed by nominations based on value of outstanding investment and/or the value of the claim (or potential claim)
However, the 2nd full paragraph on page 2 of the administrator’s letter seems to contradict this, stating:
“Please note that Investors who receive notification of the creditor meeting and download the Proposals may not fall within the statutory definition of “creditors” under the Insolvency Act who are entitled to vote. The entitlement of Investors to vote on the Proposals is subject to individual assessment of their investments and the Administrators do not wish to prejudice the position of Investors with valid security by categorising them as creditors for the purpose of voting at this stage. The Administrators will however facilitate the appropriate participation of Investors in the approval of the Proposals as detailed in the Proposals.”
Similar wording, though not quite as detailed, also exists in the APs @ 1.8.
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