14.05.2009

WD Bennetts update

We now have the full details of the administration of WD Bennetts, the UK tower crane rental company. The administration was a ‘pre packed’ arrangement with previous owner Edward Seager paying £534,149 for the business, most of which was financed by Lloyds TSB Corporate Finance, the main preferred creditor of WD Bennetts. Seager provided Lloyds with personal guarantees of £175,000 in order to secure the funding.

The purchase price was made up of the encumbered asset value of £458,749 - £74,496 of other assets plus £1 for each of the following – Customer lists – Existing contracts – Goodwill – Intellectual property rights.

The value of the encumbered assets - £458,749, was immediately transferred back to Lloyds TSB.

An independent valuation of the unencumbered assets estimated their worth at £90, 000 as a going concern or £40,000 in a ‘fire sale’ situation.

The administrators - BDO Stoy Hayward, was initially appointed in January by Lloyds TSB to carry out a forward cash flow analysis after the company defaulted on its loans and was unable to refinance. In March BDO was charged making discreet enquiries to find a buyer. When it was unable to unearth any interest it investigated alternatives and determined that a ‘Pre Packed’ sale to the management was the best alternative.

BDO says that the option of operating the business in administration while trying to sell it as going concern was not a viable alternative, due the fact that the business was likely to generate operating losses, while incurring high fees. The access to or availability of working capital was also limited. In addition such a move would have generated preferential claims from 38 secured creditors and 37 employees.

Finally the business was also expecting a substantial fine and penalties following its prosecution for an accident in 2005.

Vertikal Comment

There are major questions about pre-packed administrations, and they are certainly open to misuse or even gross abuse. However in this case it looks as though the pre-packed sale was the best way, or even the only way, to go… assuming that BDO did do a thorough and proper job of trying to find a buyer.

In our experience Adminstrators usually do a dreadful, or even incompetent, job of seeking a buyer and achieving the best value for creditors. In this case though it would have been a major challenge to have found a buyer willing to pay as much as Seager paid for the business with Lloyds support.

Once again however the ordinary creditor is unlikely to get anything out of this administration, as usual the bank and the administrator will take all, or almost all, of the available funds with no serious concern given to the other creditors, many of which are likely to be small businesses which might well be forced into administration themselves by their losses.

To be fair in this case we have not seen the accounts or a list of the creditors. Perhaps buyers should be obliged to pay creditors back in the event that they generate significant profits in years immediately following the purchase?