Yorkshire Leisure Business Loan

I couldn't guarantee that I'd be in a position later to pull my pre-bids before they were turned into real bids, and I didn't want to take the risk that I might find myself committed to investing in something I didn't want to invest in.  Besides, with such a low level of pre-bids it seemed clear to me that the loan wasn't going to be funded instantly so I'd have adequate time to bid after it went live.

As for whether or not I'll be investing in this one at all, I just don't know enough about bankruptcy/administration/pre-packs.  I have a (hopefully small) concern that if this reorganisation is unsuccessful at creating a going enterprise, then the next time they go through the process this loan will become one of the victims of the reorganisation and the security we thought we had will evaporate.  I'm hoping the full credit report will indicate exactly what's happening to the current creditors of this business -- other than the bank which is taking a £2M loss.

In the meantime, if anyone with more knowledge than I could explain what happens to the holders of a legal charge over the bricks and mortar assets when a company goes through a bankruptcy/administration/pre-pack, I'd be most grateful to learn more.

Put simply if you have a first legal charge you come first in line for payment up to the value of the property.. If you have a second legal charge you come second and then if it goes tits up once the person with the first legal charge has got his money you get to take your second charge out of the value. It is very much like first and second mortgages. Most people have a mortgage. If you decide to add an extension and need to borrow money you can either go back to business that gave you the first mortgage and extend it or you could go to someone else and borrow from them through a second mortgage. If you went bust, the property would be sold and the first mortgagee would take out what you owed. Then the second mortgagee would take their money out of what was left. Anything left over would go to you. But if the sale price was not enough to discharge the mortgage you could end up owing money.

Hope this helps.

Also as secured creditors AC should be included in the discussions over the the bankruptcy/administration/pre-pack and it will be down to AC's team to decide how lenders will be best served. i.e. negotiate on the loan terms and, or amount thus improving the possibility of the business trading through, or sticking to their guns, potentially seeing the business fail and then taking their share from the sale of the property over which that have charges. The problem with this loan is that there is potentially a very limited market for the property should it need to be sold so the AC team could be faced with either renegotiating the loan on worse terms for lender or risking having money tied up for a long period in an unsalable property.

Someone asked in the Q & A whether the suppliers have been paid and there is still no answer to that.   If the local shops and other small traders have been ripped off and the business owners have been able to do that and still keep control of the business by some legal manipulation, then I would not wish to help them by providing funds.   This may well not be the case but there should be an answer.

I can see that politicians and civil servants would think this was a good idea to gain possible future taxation, so they legislate to allow such things to happen, but they never have had  any interest in the welfare of small business people and sole  traders, who are the ones who always suffer in these situations.

From the summary.

"9 year repayment profile with bullet repayment at term
 First 3 months interest only, monthly capital & interest payments thereafter"

Thanks for that info. I will teach me to read the summary instead of waiting for the full story.

Below is an answer given on q & a from AC website re: Yorkie loan, which has clarified some of the misgivings I initially had. Will await full report for further details & make a final decision based on that.


"The existence of the Administration regime in UK law and in particular the ability for a company to appoint an Administrator “out of court” in a “pre-pack” Administration process has arisen from a desire by previous governments to create a “rescue culture” for business in the UK and has been in general use for over 10 years. The rationale behind this rescue culture is that if a business can be financially and operationally restructured so as to be viable (profitable) going forward then it can continue to employ staff, pay its suppliers for ongoing supplies, invest in growth, etc etc and generally contribute positively to the economy, it is better for all than if the business is simply liquidated which will negatively impact the economy (redundant employees, loss of future business for suppliers etc). The rules governing pre-pack procedure are entirely focussed on ensuring that the ethical considerations which have been raised over the years (mainly concerning potential impact on unsecured creditors) are managed to the fullest extent possible, and Assetz Capital would only consider being involved in a transaction where all these rules and regulations are met.
In relation to the Yorkshire Leisure Business the business has struggled to return to profitability over the last few years (throughout the recession) and made significant efforts to repay their debts in full but their existing lender is not prepared to continue to support them and is forcing the company to repay their loan. The main impact of the proposal is on the current secured lender who is well aware of the proposed transaction and has agreed to it. Key trade suppliers and employees are expected to be transferred across to the new company, thereby being paid in full out of future, profitable trading. We understand that there are crown creditors (HMRC and Local Rates Authority) who are likely to have a claim in the Administration and who would face a loss. The management team are committed to turning the business around and are providing significant personal security which will be at risk in the business going forward."