LCF Administration - What are their Rights & What Happens Now?
What happens when administrators are appointed?
The administrators are appointed to run the company because LCF management have realised that it is insolvent. You can find out more details about insolvency hereThere are two ways to determine whether a company is insolvent, either:
- cash-flow test: is your company unable to pay its debts as they become due? (a company is taken to be unable to pay its debts if it can’t pay a court order against it or if a creditor who you owe more than £750 to, has formally demanded its money and the debt has not been paid within three weeks);
- balance sheet test: are your company’s assets worth less than the amount of its present and future debts?
It's really important to note that the administration and the freezing of accounts by the FCA only affects London Capital & Finance. The companies lent the £236 million by LCF are not affected and this means they still have the ability to move their cash and use it as they wish which may not be in the interests of bondholders.
What is next?
Administrators take over running the company from the existing management to try to turn it around and to arrange a restructuring process. It seems likely in the case of LCF that the next stage would be liquidation so that funds can be returned to bondholders. The administrators have stated that they aim to have a plan in place within 8 weeks to decide the next steps.
However it's important to note that the actions of administrators relate SOLELY to the company in administration. They have no rights over any other companies so it's very likely that the information that they have available from the companies loaned money from LCF will be limited. Many of those companies have delayed filing their annual accounts so the information available is several years out of date. It may be that the administrators have no more detail than that other than information on the actual loan agreements.
In the interview with BBC Moneybox, S&W administrator Finbarr O'Connell stated that it was beneficial to only have 12 companies with loans.
What he failed to say was that the number of people they need to speak to is even lower than that as many directors are the same across the 12 companies. For example Simon Hume-Kendall could cover off the details for London Oil & Gas as well as London Power corporation
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| Loans from LCF |
The loan agreements would appear to take 2 forms, ones where interest is payable and ones where the interest is either rolled up or replaced by other return such as convertible shares. If a loan has been issued to a company that has rolled up interest then there is no way the administrators will know how that company is performing and if the loan can be repaid.
The loan documentation should give the administrators on behalf of LC&F the contractual right to inspect the borrower’s books and accounts
ReplyDeleteYou mean if a loan was written to benefit the lender? What if it was deliberately written to benefit the borrower or the clause was just omitted in error? I think you may be over optimistic that the loans would allow that. Maybe a normal loan situation but this is not a normal loan to an independent company
DeleteThe administrators on behalf of LCF should have the contractual right under the loan documents to inspect borrowers’ books and accounts
ReplyDeleteAgreed. The IM for LCF said that there would be such clauses in the loans but hey, as the letter of claim from one of the bond holders against the directors and Hume Kendall says the statements in the IM were untrue
ReplyDeleteThe IM was definitely untrue when loans were made to new, non trading companies yet the IM claimed analysis of 3 years accounts and profitability before lending. That's just one element, no mention of lending to companies run by LCF directors and their chums although that's an omission rather than lies
DeleteIs there evidence out there yet to prove the loans were made to companies owned by LCF directors and or associates? The loans do not appear to have been made in the interests of the bondholders (new companies with no history) so it leaves one wondering who benefits from these loans. I'd love to see the money trail.
ReplyDeleteYes, all the evidence is at Companies House on the public record. The companies were in the main all registered at the same address as LCF as well.
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