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Aproval of fees and termination of administration.
To All Known Creditors20August 2019Dear SirsDebenhams Plc (“the Company”) –In AdministrationIn the High Court of Justice,Number 002456of 2019As you are aware,Andrew Johnson, Simon Kirkhope and I were appointed Joint Administrators of the Company on9 April 2019. As set out in the Joint Administrators’ Proposalsdated 28 May 2019,in circumstances where no creditors committee was formed,the Joint Administrators arerequiredto make an application to court for the approval of the basis of theirremuneration.The Joint Administrators accordingly issuedan application in the High Court for the basis of their remuneration to be fixed in accordance with the Insolvency Rules 2016. For informationcreditors should be aware that the Joint Administrators’anticipate that their remuneration will not exceed the level of the fee estimate set out in the Joint Administrators’proposals.In addition,the Joint Administrators (as partofthe same application)are seeking their discharge from liability pursuant to paragraph 98(1) of Schedule B1 of the Insolvency Act 1986, suchdischarge to take effect 28 days after the date on which the final progress report is issuedto creditors of the Company. A preliminary hearing of the application has been listed for 16 September 2019 at 12.30pm.A copy of the application notice is available at https://www.fticonsulting-emea.com/cip/debenhams-plc. Acopy of my witness statement,filed in support of the application,is available to creditors on written request to the Joint Administrators using the following email address at debenhamsplc@fticonsulting.com. Should you have any further queries please do not hesitate to contact Nicholas Rollings of this officeusing the above email address oralternatelyby phone on 020 3727 1135. Yours faithfully,For and on behalf of the Company
https://www.fticonsulting-emea.com/~/media/Files/emea--files/creditors-portal/cip-emea-public/debenhams-plc/letter-to-creditors--application-to-court-20-august-2019.pdf
https://www.rns-pdf.londonstockexchange.com/rns/0320L_1-2019-9-3.pdf
Yet to read this, but it might mean another payment to bond holders.
"What is your view on the comments made in the CityAM"
Intended to sell newspapers.
They were in an impossible situation, so mistakes get made. That's not a crime, it's part of the risks an investor takes on. The fallibility of Boards. They acted to protect the business, so that it was a going concern. Boards are there to provide returns to shareholders, but also protect creditors. On the last roll of the dice Boards will flip and do everything they can to protect creditors and try for an ordely administration. I just don't see anything illegal has transpired. Was it a perfect? I doubt it. Was there an easy option, yes and they did it. Do I think some of the lenders held the debt expecting this outcome? Yes, I'm sure some did. Is any of that illegal? No. It's no different to specualting in the equity of a company. Just with a bit more security. It's still risk capital, but unlike equity (which is all risk capital) it comes with some greater seniority when a company hits the buffers. Collusion will be difficult to prove, so unless there's an obvious break of the Insolvency Act, not just cycnical misuse, then I can understand why Debenhams are confident about winning the case. But as they say, you never know.... and don't invest more than you can afford to lose.
Good comments as ever Devon.
What is your view on the comments made in the CityAM article [posted again by me recently]? That article is pretty damning on DEB's BOD?
"Thanks devon for the link I’ve also read a few articles regarding the court, the main focus will be on the cva and its impact on landlords, correct me if I’m wrong but i don’t see any recovery for SH including MA whichever the court outcome will be"
My own view is they, Debenhams, will win the case.
I've tried to illustrate the point that even if there was a re-instatement of shareholding it would be in a private company and might still not offer an exit for smaller holders.
SPD/CPC could push the business back into administration and that might allow SPD to buy the assets it wants. If that happens then any distribution will be to creditors first. So nothing or very little going back to the shareholders.
SPD could benefit as the article suggests, either commercialy or buying assets on the cheap.
But, as I say, I expect Debenhams to win. Reversals of this kind are very unusual and why would SPD, unusally, want to support the interests of landlords...that I think it a real weakness in the case. I'm sure the Judge will be asking the same.
"the cva and its impact on landlords" that's the way I undertand it. So yes, I agree with you.
Thanks devon for the link I’ve also read a few articles regarding the court, the main focus will be on the cva and its impact on landlords, correct me if I’m wrong but i don’t see any recovery for SH including MA whichever the court outcome will be
Indie article of yesterday:
https://www.independent.co.uk/news/business/mike-ashley-debenhams-legal-challenge-cva-sports-direct-administration-a9089326.html
The situation keeps on getting more complicated, according to CPC debenhams equity was acquired by its lenders for £60M whereas its debt remained the same in fact it’s gone up which I don’t see a fair value because if you take into consideration the value of magasin du nord I would say it’s at least a £100M.
"so in conclusion will there be any value for SH if the court rules against Deb"
I'm suggesting there might be for SPD, BUT, if it's private company how will you realise it as a minority shareholder? So you do not only need it turned over, but the stock to be listed or SPD to buy you out. Otherwises what's the exit?
I'm wondering why SPD would want to do that if they can just run it as shareholding in a private business and then cross sell through it. That way they avoid all the cost of the bond cancellation (paying the bonds), get the assets they want, sell those they don't want to reduce leverage.
Just run it as private fiefdom and dump smaller shareholders in to no-man's land. Handle them as dissenting shareholders.
That's my guess, but it's a complex situation. Very few get turned over, even less come back to the market.
@Devonplay so in conclusion will there be any value for SH if the court rules against Deb?
No, I dont believe so Pearl. Only if SPD takes control of the private vehicle and then finds away for renegotiating with the bond holders. Offer to buy them out. The nature of the cap table means there's more power with the debt holders than the equity holders. You've seen the evidence of that already.
My money is on SPD contolling the private business in a way that it best for them.
Any attempy to buy the dissenting small holders out would trigger a maturity of the bonds, and if they haven't been renegotiated, several hundreds of million price tag, so if I was them I'd avoid that and just treat it as a subsidiary and try to settle with lenders by realising assests that SPD doesn't want. Then using the remaining vehicle to cross sell. Never offering any opportunity for dividends, never buying it out, and just run it for the long term . Sevice the smaller debt and obigations, asset strip it whilst cross selling .
Devon, you parry well but may I now ask one question of you:
Are there any circumstances in which, if SPD was successful with reversing the CVA that shareholders would benefit ahead of debt owners such as yourself?
"SPD hinted at criminal proceedings in their recent results if I am recalling correctly"
"In light of its strong views on the subject Sports Direct continues to examine with its advisors exactly what happened, who was responsible and investigate avenues to seek redress through civil and/or criminal process."
"examine" doesn't mean anything in practical terms. There is no criminal case.
It would still be the position that if the company has engaged in criminal activity lenders would have as many rights, if not more, than shareholders. The Company has contractual obligations via it's debt raise to act in a proper manner and provide accurate information.
These obligations have been manifestly proven by SPD's unwillingness to launch a take over and exceed the "30% change of ownership" clause that would have forced them to mature the bonds. Pay the bond holders.
Every company has obligations beyond it's shareholder. In the case of highly indebted companies, even more so.
SPD hinted at criminal proceedings in their recent results if I am recalling correctly
"Criminal proceedings"
but it isn't a criminal proceeding and there's no sign that there is one coming. It's a civil proceeding to reverse the administration.
If there was, it would negate any talk of insurance based compensation. Insurers don't pay out against criminal activity.
So just for clarity, who are these criminal proceeding against? If it's the Directors, then it's a negligible amout of money.
There would still be creditors and they would still rank ahead of the shareholders in dissolution of the company.
I think you might be suggesting if there was collusion between the Board and some lenders you should be compensated. But, if that's the issue, then the company, as represented by it's Director, should also compensate bond holders not privy to the arrangement. As those are largest stakeholder, and rank senior, they would again come ahead of equity holders in a dissolution of the company
Criminal proceedings and successfull redress should put shareholders ahead of everyone else including lenders in que, because lenders are party in this criminal negligence and tried to rob the original owners. In fact , all proceeds from sale after administration could go to shareholders
It still may not diminish that creditors will need to be paid first from any fire sale.
Ordinary shareholders will stilll be at the back of the que.
"If the court case was successful"
It would mean you are small shareholder in a private business that remains heavily indebted.
At best, in the short term, you will likely to be a dissenting shareholders in a private business controlled by SPD.
If the administration is reversed, why would there be any compensation? The company would be back to it's original shareholding, but without a listing.
The LSE would not be compelled to re-list the business.
So you would have no exit opportunity, expect those arising out of the Companies Act covering the interests of minority shareholders. That would require SPD to buy your shares privately. They would do that on a "fair value basis" for dissenting shareholders (as they are required to do by Law) but there's a myriad of ways for them to side step that. From simply running the business like it's a subsidiary, but never taking a dividend to initialting a consolidation of shares that can see your shareholding evaporated. Or simply argueing the "fair value" is 0 as the business is now worthless. It would require another group of shareholders to fight that valuation.
I wouldn't rush out and buy champagne if Debenhams loose this first round, they'll challange it any way, it's a very long and rocky path either way.
If the court case was successful it would open up the floodgates to claims from us ex shareholders for compensation
Since Debenhams was insured for negligence the insurers would then be liable
interesting to say the least.. any idea to how long the case will take? and if successful would we ever see a return to shareholder value if the company falls into administration?
How about criminal proceedings against BODs? It was strange the way the lenders wanted to own Debs. Keeping in mind the market share of the Company, its still worth over a billion pound. now with CVA , its even worth more.
If you read that recap from the excellent CityAM newspaper, you'll soon see why shareholders are sore over this matter, and why the High Court case if of great interest. Let's see how things go, but I do note that DEB have now lined up Deloitte in case things go wrong.
Part 2 recap:
Offers are now being sought for the operations, but on tough terms that stop a buyer contacting landlords or concessionaires for 18 months – a ridiculous restriction, not least since Debenhams is now in a Company Voluntary Arrangement with creditors to reorganise its debt stack. Does this restriction apply to the lenders and current owners? No wonder Sports Direct has complained to the FCA that this potential sale is not genuine. The Americans have ridden roughshod over UK insolvency law while regulators sit and watch. Directors would insist that they have acted in good faith, putting the interests of the company – and therefore its shareholders – first. However, the Companies Act 2006 is clear on fiduciary duties to shareholders as a whole, as well as on exercising powers to reduce the influence of dissenting ones. Something is up with the Debenhams process, with the scale of possible wrongs ranging from simple lack of judgement by directors, to what Ashley has described as a “long planned theft”. Swooping magpies are a protected species unless they are shown to be a threat to conservation. What Debenhams’ directors have conserved is debatable – certainly not Ashley’s 29.7 per cent stake, at an estimated loss of £150m, nor the chance, through his rights issue, for other shareholders to participate in a turnaround. Regulators have a duty to take a much closer look at what appears an appalling use of the pre-pack process.
From CityAM article on 9th May: [Part one recap]
Magpies are among the world’s cleverest animals. Prone to cunning theft from other nests, they enjoy a surprising degree of protection. Foiled Debenhams suitor Mike Ashley won’t miss the irony that while his Newcastle United Football Club is nicknamed after these swooping robbers, a marauding band of debtholders have led a planned effort to steal the stricken retailer from under his nose, wiping out his near 30 per cent stake and those of other shareholders. The situation is far from black and white. Controversial Sports Direct owner Ashley might be “Marmite”, but the pre-pack administration of Debenhams raises important questions of directors’ obligations to shareholders. No cheers for the non-executive directors here. Former chairman Sir Ian Cheshire was off the board comfortably before the pre-pack, ousted in January’s AGM. Debenhams had lost 90 per cent of its market value on his watch over less than three years. The wisdom (and freedom) of remaining directors in appointing administrators is questionable. Ashley’s long-running battle with Cheshire about underperformance is well-documented. During this period, Sports Direct grew its shareholding to just below the mandatory takeover level. But at some point, the board cemented its determination to keep Ashley’s tanks as far from their lawn as possible, whatever the cost.
In December 2018, Sports Direct’s offer of a £40m interest-free loan, in return for security over some of Debenhams’ assets, was rejected as against the interests of other stakeholders – although the move was seen off by directors in a manner that suggested they were preserving their own positions, as opposed to those of the company. In football speak, Ashley said it was like being offered Messi on loan and turning him down. Two months later, the board agreed a loan of £40m from existing lenders, on stringent terms, notably that any fresh debt would require the lenders’ consent. The directors effectively shut Ashley out from that point. While directors were planning in March to raise £200m from these lenders, Ashley offered £150m interest-free, on the condition that he became chief executive and the new debt plan was dropped. Later in the month, he considered a £61m cash offer for Debenhams’ equity – double the market value. Finally, in the 24 hours ahead of the group falling into administration, he offered to underwrite a rescue rights issue for £200m. The company had effectively been working against a timetable imposed by an Emergency General Meeting process. Debenhams had to respond within 21 days and hold the meeting within a further 28 days, meaning a late-April deadline. The pre-pack deal agreed by directors immediately sold the shares in the trading entity to a new vehicle controlled by US debt investors.
IF this were the case...any chance investors can get compensation, if no why are we bothering keeping tabs on developments. I only have interest in my personal losses in Debs?