Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Dicker: So far as future business contribution goes; there is clearly a line to be walked. You can't agree to provide a % that is so large that no one is interested in investing in AMGO. That's the line that the company has sought to draw, with advice. GJ says that the proposal is "right at the edge" - the board's view is that there isn't any more. The point is obvious but; unless one has a viable AMGO 2.0 earning profits, there won't be a future business contribution to be provided to creditors. Share holder contribution to the scheme, GJ says - he refers to Mr Mills saying neither the parent nor share holder is contributing any new money. AMGO did consider this option twice, concluding it was wholly unworkable. The view taken was based on the absence of a fully approved business plan for new lending, a rights issue couldn't have been done, and the FCA enforcement (so far unknown) could not be factored in either. The 2nd time it was considered was after 10th May letter. AMGO and RBC view remained the same i.e. cannot raise from investors at this time as the future is unknown.
Dicker: talking about the profit share for the next 4yrs. Would like to explain why this sum is not arbitrary and cannot be increased. It clearly shows that to start AMGO 2.0 they WILL need to raise NEW FINANCE to get up and running. Judge interrupts to clarify something and it looks like there will be an equity raise i.e. a rights issue. Thus, no more than 15% can be offered as it basically leaves a shortfall for AMGO 2.0 without a raise.
Dicker: talking about recent shareholders. Making the point there has been no dividends. Making the point no dividends can be paid without FCA consent. Giving props to shareholders saying this may be a significant proportion of their shareholding.
Judge: as far the evidence goes, it wasn't necessary to obtain consent from BHs for the initial contribution - why? Dicker: reason must have been something like there was a floating charge on some proportion of the monies [assume AMGO cash in the bank].... gah - difficult as I am in this call now! Any help? Missed maybe the best bit! But shareholders are already being punished [to paraphrase] by giving up the 15% in profits. The FCA thinks there could have been a better scheme proposed! HELP SOMEONE!
QC Dicker: Mr Mills statement says that if scheme fails, the secured creditors will be paid in full and AMGO hasn't brought the bondholders into this negotiation [to paraphrase]. FCA see the scheme as unfair as it favours paying the bondholders in full vs. unsecured creditors get nothing. [seems to be the FCA want bondholders to contribute but I think we've read some of this]. Dicker: from GJ - any attempt to involve secured creditors would have greatly delayed matters and may have resulted in a worse scheme [to paraphrase], if any. At the outset of the scheme, there was no active bond holder group and to involve them would have increased costs. [difficult to follow some of this as they're reading a lot but it seems to be that secured creditors weren't involved in the process]. Some bond holders did get in touch and wrote to AMGO to say that they would NOT have contributed anyway and they expect their money to be secured and to rank ahead of others. Bond holders expect to be fully repaid incl. interest as agreed and would not countenance any write-off. Bond holders go onto say that they would have deemed it unacceptable to be asked to contribute [bond holders said NO way to helping AMGO out - hard ball].
Judge: How is it right to say that further up front cash contributions are not possible? Dicker: because the only cash AMGO has is the cash that bond holders have a prior claim to. Dicker: How much cash can be found for the initial contribution, answer £15M - that's what can be provided. The reason more can't be provided is the bond holders who are secured and entitled to insist that AMGO don't spend their cash they're due. AMGO have agreed to pay 4yrs of profits, irrespective of it's cash position. The board are giving as much now as they can AND a share of its profits over the next 4yrs and this is right at the edge of what AMGO can manage. Judge: Ok, thank you very much.
Judge: I am not suggesting that it would be necessary to go out and have a rights issue but rather a question of whether the up front cash contribution is the most that can be paid. What this document says is that it is impossible to put more cash in the pot but you have ignored the fact that if you were re-lending, which you intend to do, then you would have more cash available to repay bond holders in 2024 [judge is very sharp, to be fair]. Judge: AMGO is saying there is no possibility of more money when [to paraphrase] there could be when you factor in future business. Dicker: when we talk about further money in the future, coming in from future lending, lending comes in and lending goes out - the scheme creditors already benefit from the % profit of that new lending over the next 4yrs [thought Mr D had tied himself up here but he's ok]. So, the judge should consider that re-lending is included by way of the 15% over the next 4yrs [to paraphrase]. Judge is quiet...
The problem is that we don't have a trading company, we don't have a future company, etc until we know whether we have a scheme and how do you raise money from shareholders knowing that? The board decided not to look for money from retail investors because of all that. The short answer; the focus on this was slightly different, they weren't trying to model what would happen to the share price in the future but to say we have a problem in 2024 and no spare cash. problem: 8000 predominantly retail investors, no ongoing business, no FCA 'offer', no scheme, etc... Judge: the way this is presented is rather illogical. The graph shows that without future lending, AMGO will run out of money in order that they repay bondholders. The point should be that it should be assumed the graph is based on scheme approval, therefore future business SHOULD be on the graph and priced in. Thus, the cashflow would be different [the point being is this may be misleading re. necessary insolvency]. Judge: the amount available in 2024 could be more than the graph shows, when re-lending is considered, which would mean that AMGO COULD MAKE A LARGER UP FRONT PAYMENT TO CREDITORS. [interesting... he's gone larger up front not % profits].
QC Dicker: talking about the financial graph the judge questioned before recess. I think it shows the calculations for cash flow and how the company might project they'd go into administration. I don't think it showed any future lending built into the calcs. Bit difficult to work out what is going on as I don't think we have seen it. Judge: the point I had was this was being put forward as an explanation for why the £15M amount is all there was. Judge: As I understand it the graph shows that using the current cashflow (i.e. just the cashflow) it shows the cash will go to zero but it doesn't seem to include any cashflows from the assumption there will be new lending [very perceptive]. Judge: why was it done this way? Dicker: this is about secured bond holders and the bond repayment in 2024, when the expectation is that the company will be cash negative after that borrowing is repaid. stepping back to today's point or January, at the start of the scheme, there is the difficulty of bond repayments due in 2024 and we need to be sure we're in a position to repay them as they're secured and entitled to repayment over unsecured creditors. Having said that [to paraphrase] AMGO said we can't go on paying redress claims as we'd be paying them out of bond holders money, due to them in 2024. this is why no redress has been made since scheme inception. The consequence was that AMGO during this period had no business as it wasn't dealing with redress claims and it wasn't re-lending. Looking at the position today; there's still no scheme and still no AMGO 2.0 as the FCA won't discuss it until after the scheme is sorted. How does one address that? That's the issue. AMGO is not trading and it's ability to do so depends on the scheme - how in the meantime do you raise new money from shareholders, for example, bearing in mind the low level of the share price at this time. The answer to your lordship is that so far as the present position is concerned; the board told shareholders what they bona fide thought: we either have this scheme or it's admin and no one gets anything (unsecured).
They are back... Will do what I can here!
Anyone...? Lots of people must have dropped off as lots of new people are being admitted and are being checked...
No, I tend to agree with that. All of it. I think this hearing goes to show that the FCA have actually played quite a strong hand, not letting AMGO wriggle out of it. I do see a world where they are told to go away and come back. Will be interesting to hear what the FCA counsel says this afternoon. The judge isn't happy the only alternative is insolvency and... it looks like it probably isn't, QC Dicker pretty much suggested that and invited the FCA to negotiate with them, effectively. If the FCA don't engage today; they really are playing very hard ball. It is very possible the judge could decide he doesn't like the scheme or sending them insolvent (it did come across as a bit of a threat for AMGO) and adjourns based on the requirement for pencil polishing. I don't, however, think a re-vote is required under the same acceptance terms with a larger pot. Maybe but it would seem mental. If more than the pot get changed then, yes, we're on for a rollercoaster. Don't confuse my brevity for confirmation bias... I need to give the hands a rest! To that end (work is piling up) is there someone else who thinks they could take over at 2pm? I can always 'help' or re-takeover at some point but I think I need at least the opportunity to take some breaks. I won't, however, stop listening albeit I do have another meeting at 2:30pm, which I can have on on another PC (and don't need to contribute to)...
You're all welcome... My simple view before I have a quick walk; the judge does NOT like the 'threat' of this scheme or insolvency. He believes there could have been a better one, even if only slightly. I believe AMGO can better it and they have (not so subtly) hinted to the FCA towards the end of this session that if they gave them a reasonable number, they'll add it in. The judge doesn't like being held over a barrel to approve this scheme or send them bust, getting creditors nothing. I imagine that, yeah, if the FCA say "give 'em an extra 5% profits", AMGO would be happy-sih, FCA happy-ish, Judge happy-ish to stamp it. I did get nervous earlier though as QC Dicker was playing some hard ball. Softened towards the end there. I maintain the view it's going through but not without minor changes... You don't need to re-vote on getting more money, as if someone would say no. I've held this opinion since the first hearing, if you go back. it is FAR more tense than the first one but the judge has told them how to fix it with the FCA, just need the FCA to make an offer and find a middle ground.
Dicker: Scheme Co. issued the PSL without FCA backing acknowledging the FCA would continue to assess AMGO and their approach to future lending. [your lordship - please give me a break so I can use my lunch to do some actual work!!!]. [lots of heavy breathing by Dicker, pauses, quiet from the judge, etc... a lot of reading going on]. Latest position of the FCA was relayed to creditors, etc at the creditors meeting. Dicker: it is wrong to suggest scheme creditors were incapable in deciding to vote for the scheme [some bell just unmuted themselves and disrupted at an important point - who was it :(]. Dicker: one creditor who voted in favour was the FOS with a claim of £12M. They clearly felt the scheme in their commercial interests was in their favour vs the alternative. FOS said whether it is fair for consumers is a question for the FCA and the court [you've all seen this letter]. FOS's vote does not set a precedent, etc, etc. Dicker: FOS is a highly sophisticated entity with a £12M claim and clearly they felt they should vote yes for the scheme. [looks like the break is coming]. Dicker: not moving as quickly as hoped but thinks he needs 30-40mins to finish. Judge: one question I'd be grateful for, submissions on a graph (in a specific place he has access to) that wasn't part of the statement but was on the dedicated website and available to creditors... [he hasn't told us what the graph is.. assume there is something there he doesn't like]. [BREAK!!!!!!!!!!!]
Dicker: there is no reference there to anything having changed factually. It appears there may have been a change in their "view", "obviously speculation", taken on this case [guess he is hinting at politics]. Dicker: short point is that the FCA is preceding on the basis that the question of fairness is for today and the potential of another scheme means that the judge should throw it out [to paraphrase]. Dicker going back to the point that it's very clear that GJ and the board have said it's this scheme or insolvency. there is no way of knowing how the 95% who voted for this scheme would vote for another one. If the scheme was not sanctioned and no further scheme came about, would creditors be happy [to paraphrase]. The FCA have never said "what more" would be required by them. they just say they are unhappy [again, no out of court discussions clearly then, negotiating]. Dicker: it looks like the FCA don't need a lot more as they previously didn't oppose. So, perhaps the FCA just want a very small change. Dicker: we don't know [again] [seems like he is fishing for the FCA to make an offer - clever]. Dicker: if the scheme were not sanctioned it would be uncertain what another scheme may look like and whether it may pass. it might be possible "for the sake of argument" that another, better scheme could be offered, despite what the board says, if it was a small increase [he's negotiating now - made it clear there could be a little more on the table IMHO].
1st letter [we've all seen]: FCA will not take any action were it to be agreed by creditors. FCA does not intend to appear by counsel to oppose. FCA completed assessment of scheme characteristics and does not believe they fulfil the FCA rules and objectives i.e. creditors receive significantly less. The FCA recognises these are ultimately for the FCA to assess themselves. FCA therefore considers [blah blah blah] its for the court and creditors to decide [to paraphrase] and doesn't anticipate participating themselves, albeit reserves the right to. [you all know what's in the letters]. 2nd letter: 29th March 21, acknowledge scheme company has filed evidence and called a meeting. Purpose of letter is not to re-open point but address matters about further progress of the scheme. FCA refer to previous correspondence and go onto expectations w.r.t. further engagement and confirmed they did NOT intend to appear at court and intervene, albeit reserve the right to change their mind. Dicker: the decision to appear at the sanction hearing was conveyed in the FCA letter 10th May 21. FCA does not support the scheme, based on details known at the time they did NOT intend to appear but do now [to paraphrase, you've all seen them]. Even if approved by the majority of scheme creditors, the FCA don' believe it to be fair [to paraphrase]. Dicker: 10th May letter doesn't suggest anything has changed. FCA entitled to appear today - no objection. But AMGO is puzzled at what has prompted the FCA to do so now. FCA have been aware of the issues i.e. contributions by shareholders, since at least Jan '21. Dicker: the nearest he can get to an explanation is in Mr Mills 2nd statement... Dicker directing judge to read...
Dicker: the courts decision does depend on the creditors having the information to form a reasonable judgement. As far as the explanatory statement is concerned; submissions have been made but may need to be discussed in detail. The choice in the boards view was a simple one: nothing in administration. Voters were offered the prospect of more than nothing. the explanatory statement was not long and it did not escape creditors notice that the question of an alternative scheme had been raised by the FCA [difficult to follow but Dicker basically saying that customers did have choice and were able to ask questions and get answers]. Dicker: lordship should be cautious of saying that the ones who voted for the scheme didn't know what they were doing [bold] or weren't provided with details. Dicker: underlying all of this is the question of fact - what will happen if the scheme doesn't happen. Dicker: judge says another scheme may be possible - AMGO board say that it isn't. Dicker: conscious of the time lets turn to the FCA grounds for opposition. They wrote a letter before the convening hearing and then before the creditors meeting. [assume he is going to point out they said they wouldn't involve themselves and now say they will i.e. causing confusion. Just saying that so I can have a 1min break to drink water]
Dicker: directs the court back to Inmarsat [discussed on the LSE board] and a steinhoff (??) case, which are basically saying that it is not for the judge to make any sort of commercial judgement [I assume this means the judge isn't there to suggest AMGO give X, Y, Z, etc additional money based on what they think]. Dicker: the test is rationality - is an intelligent and honest man acting in respect of his interests when voting voting for the SOA. The issue for the court is NOT this scheme or some other scheme BUT this scheme or the alternative [insolvency]. Judge: what happens if the court concludes that they are NOT SATISIFED the alternative is insolvency and the most likely alternative is some attempt by the board to seek a different compromise through a scheme. These other cases were dealing with scheme were the court was satisfied the alternative was insolvency [i.e. the judge does seem unsatisfied insolvency is the alternative]. Dicker: it's not for the court to form a view on whether or not the scheme is the best or whether there is another one but is it reasonable a reasonable person would vote for it. Dicker: the court should simply sanction the scheme if they think a reasonable person has voted. It's not for the court to direct them to another scheme. What would happen if there were no scheme? In this case, the board have said that the alternative is insolvency and his lordship should proceed on this scheme or insolvency i.e. nothing for creditors. [judge is quiet]. Dicker: FCA is NOT entitled to turn up and say to the court a customer could rationally vote for the scheme but say there is a better scheme that could have been offered. Dicker: his lordship is not being asked any question about an alternative, the question was was it rational for them to vote that scheme through. [playing VERY hardball here]. Judge: I suppose the question could be posed in a slightly more nuanced way not could a rational creditor vote in favour but in looking at that question, could the court ask whether the creditors have been properly consulted and have the creditors had all the information available to understand that the scheme is the only one. The AMGO details have led them to believe it is THIS scheme or nothing. The court MIGHT conclude that was NOT a fair representation and there were alternatives never presented. Then, it's not the court deciding whether there is a different scheme but is the court satisfied that the voting population were properly informed and the court can therefore be guided by the vote and be satisfied the vote through was correct [to paraphrase]
...seen that from AMGO. Dicker will have a look over recess [to paraphrase]. Dicker: has his lordship received a 2nd witness statement from Mr Mills and Mr Jennison... [lost track a bit when my last message was too long and cut off]. Principles in guiding the court - the court must be satisfied that it is a fair scheme and something an honest [etc, etc, etc] man might upheld. [Difficult to follow as they're reading from paper - basically we're back to "fairness"]. In a previous case a judgement said the court is NOT concerned to decide whether the scheme is the only fair scheme or the best scheme [a good rebuttal to the opening].
Judge: bringing up the point that in one of these other cases that judge noted the proportion of turnout vs. potential total amount that could be claimed may have been small. Dicker: does not have the figure to hand to give the AMGO proportion. Will be able to provide a figure [later]. [basically - did enough people vote, do they represent enough of the claims out there]. Dicker: there is no question that customers were able to engage [and chose not to, effectively i.e. if you didn't vote, it's on you]. 78,740 creditors voted, which represents 8.6% out of ~915,000 customers who could have voted, albeit not all could have claims against AMGO. The FCA have acknowledged that response rates can be low. [judge is being directed to where that is written]. FCA letter "FCA remains concerned about customers... who do not engage but notes response rates can be low". Dicker: AMGO has gone to great lengths to publicise the scheme, meeting, etc. This is not a process in which the process has been rushed and creditors had plenty of time [to paraphrase]. Notice of the scheme has been provided to customers for some 4 months or more. The convening hearing was well attended as it exceeded the Teams limit. [Dicker basically saying AMGO have done all they can to get turnout to vote etc]. 3 points... 1). 915k were allowed to vote but not all of them may consider they have a claim so won't have voted. 2). 60,367 votes were instructed by borrowers 861 by borrowers and guarantors (they were both) - the point is made because guarantors are less likely to have a redress claim as they may have never been asked to make a payment under their guarantee QED no claim. GJ said in his statement 70% of guarantors never made a payment. 3). scheme includes customers from as early as 2005, AMGO has taken no limitation point but when assessing turnout, lordship should bear in mind these older customers were involved in AMGO much earlier in its life and may have had no interest in participating in this. 4). 137k existing customers vs 78k who voted means the proportion is more than 50% of that figure. Dicker: there was no coercion of the minority at the meeting. Judge: there was a query about the level of complaints vs counterparties and is not entirely clear whether there is any reasonable basis for seeking to estimate how many customers might indeed have claims. Dicker: agrees this is difficult and could pull together numbers that have been identified. Dicker: "what is the sample one uses?" is the sample those customers that complained and upheld by FOS? That gives 1 answer. Dicker: whoever complained to FOS will have already complained to company and the fact that FOS upheld 40% of claims does not mean the same number will be upheld going forward. There is no easy mathematical way to do the calculation. FCA and GJ are not in agreement about how this might be calculated. Judge: in previous case they looked at number of counterparties vs. number who complained but isn't sure he has,,,