Bigblu Broadb. Regulatory News (BBB)

28 Feb 2006 18:17

Berkeley Berry Birch PLC28 February 2006 Update on financial position Sale of the business and related assets and liabilities of Berry Birch & Noble Insurance Brokers Limited, and Heads of terms for sale of further group businesses Update on financial position Berkeley Berry Birch plc ('BBB' or 'the Company') is the holding company for afinancial services distribution group. Its principal subsidiaries are BerkeleyIndependent Advisers Limited ('BIA'), Berry Birch & Noble Insurance BrokersLimited ('BBN IB') and Berry Birch & Noble Financial Planning Limited (Weston)Limited ('Weston'), all of which are regulated by the Financial ServicesAuthority ('FSA'), the latter via BIA. Trading in the Company's shares wassuspended from 1 December 2005 at BBB's request pending clarification of itsfinancial position. For a number of months the Directors have been trying to refinance the Company and address the regulatory capital deficits within BIA and Weston and to provide the funds to meet the Group's working capital requirements. On 29 July 2005, the FSA issued Decision Notices against BIA and Weston as a result of their regulatory capital deficits. As announced on 18 January 2006, the FSA agreed that it would not serve Final Notices in respect of the Decision Notices before 27 February 2006 and would, in any event, not serve Final Notices in respect of the Decision Notices if BIA and Weston could provide the FSA with written opinions from its auditors that they are compliant with the Prudential Rules on capital adequacy. Weston has since become a member of the BIA Network and is therefore now authorised via BIA and is no longer a directly regulated company. Following the transfer of Weston into the BIA network, the regulatory capital deficit in BIA is around £4 million. BBB's interim results for the six months ended 30 September 2005, announced on29 December 2005, disclosed an operating loss of £1,385,000. Since 30 September2005 trading has remained difficult. This has been as a result of the continuedimpact of the well-publicised issues affecting the business. As at 30 September2005 the Group had consolidated net liabilities of £496,000. Included in thisfigure is a liability of £3,245,000 in respect of the Group's defined benefitpension scheme. The Directors announce that they have been unsuccessful in completing their plan to recapitalise BIA by the FSA deadline which involved: (a) the sale of BBN IB's business and related assets; (b) the sale of 50% of BIA together with the application of the proceeds of the sale of BBN IB to recapitalise BIA; and (c) a subsequent equity and debt capital raising. Although the sale of BBN IB's business and related assets and liabilities has been completed, a number of factors have prevented the Board from completing its plans, including a further deterioration in the trading prospects of BIA and the withdrawal of a potential investor in BIA at a late stage. The Directors have been advised that although the proceeds from the sale of the BBN IB business and related assets, together with the cash balance held by BBN IB, might have been sufficient to refinance BIA, the Directors, in the light of their obligations to BBB's creditors, including the Group defined benefit pension scheme, could only do so if there was a realistic prospect of raising sufficient funds, over and above those from the sale of the BBN IB business and related assets and liabilities, to enable the Company to continue trading for at least the next 12 months, an amount estimated by the Board to be around £5 million. The Directors have concluded that the uncertainties around the future of BIA as an independent entity following its deterioration in trading prevent them raising funds externally and have therefore concluded that they are unable to recapitalise BIA. Instead, the Directors must take all steps to sell the Group's remaining businesses with a view to attempting a solvent outcome for the Company. In this respect the Company has entered into conditional heads of terms with Tenet Group Limited ('Tenet') for the proposed sale of its remaining trading businesses, as set out below. The FSA will issue Final Notices no later than 9 am on Monday, 6 March 2006. This will allow the sale of BIA and the other businesses to proceed in an orderly fashion. Tenet have informed BBB that they are committed to this timetable. Following the completion of any sale, the Group will cease all regulated activity and BBB will apply to enter administration as soon as possible. Sale of the business and related assets and liabilities of BBN IB The Group has today completed the sale of the business and related assets and liabilities of BBN IB, a wholly owned subsidiary of the Company, to Smart & Cook Limited. Given the financial position of the BBB Group, the United Kingdom Listing Authority ("UKLA") has granted a waiver under Listing Rule 10.8 in respect of the requirement to issue a circular and obtain shareholder approval in respect of this disposal. BBN IB is an insurance broker established in 1964 which specialises in givingadvice on a range of personal and commercial insurance products for individualand corporate clients and employs around 70 staff. The estimated total cash consideration receivable from the disposal, includingthe maximum deferred consideration, is £4,521,000. The initial considerationreceivable from the sale is £3,117,000, payable in cash on completion,comprising £3,276,000 in respect of 70 per cent. of the total considerationpayable for the business less £159,000 in respect of the estimated net liabilityposition. The balance of the consideration for the business is payable 13 monthafter completion, although this will be reduced if the general insurance feesand commissions, net of any paid away commissions, in the year followingcompletion is less than the level agreed at completion of £3,900,000. Thedeferred consideration cannot be lower than £nil and the maximum deferredconsideration payable is £1,404,000. For the year ended 31 March 2005 BBN IB reported turnover of £4,594,000 whichincluded approximately £11,000 in respect of the Private Insurance Portfolio("PIP") division that was sold in January 2006. Profit before tax for the yearended 31 March 2005 was £473,000, which is net of an estimated loss for the PIPdivision of £242,000. The turnover and profit before tax have been extractedfrom the Annual Report and Accounts for the year ended 31 March 2005, upon whichthe auditors issued a qualified opinion arising from limitation in audit scopein respect of a £200,000 provision against unreconciled debtors for which theauditors were unable to obtain sufficient evidence. The gross assets being soldare estimated to be £2,747,000. All of BBN IB's staff, including the managementof the company, will be transferring as part of the disposal. Heads of terms for the sale of further trading assets of the Group The Company has entered into conditional heads of terms with Tenet for the saleof its remaining businesses and related assets, including those of BIA and Weston. Tenet is the largest independently owned IFA Group in the UK and currently supports over 5,000 advisers through seven of the industry's major brands. The Board has selected Tenet as a potential purchaser because it believes that Tenet's size and industry credibility provide the greatest likelihood of a positive outcome for the Group's employees and clients. The UKLA has granted a waiver under Listing Rule 10.8 in respect of the requirement to issue a circular and obtain shareholder approval in respect of the disposal of the Group's remaining trading assets to Tenet. A further announcement will be made on reaching agreement with Tenet on the terms of the sale. Working capital The BBB Group does not have sufficient working capital for its presentrequirements. On a going concern basis, the Directors estimate that theadditional funds required for the next 12 months would be around £8 million forthe next 12 months. As noted above, the Directors have concluded they are unableto raise the funds required and therefore the BBB Group is no longer able tocontinue as a going concern. In these circumstances, the Directors have tomaximise the funds available creditors, which, as explained below, is also inthe interests of shareholders, since it gives them their best chance of a returnon their investment. Application of funds from the disposals Given the financial position of the Group, the funds from the sale of thebusiness and related assets and liabilities of BBN IB and from the disposal ofthe remaining businesses to Tenet will be applied to meet the Group'sliabilities to its creditors. The Directors consider that the disposals of allof the businesses are also in the best interests of shareholders, since,although it is far from certain, it gives the best chance of a solvent wind upof the Group and a return for shareholders. It will only be possible todetermine whether a solvent wind down is possible when the disposals of all ofthe businesses have been completed and the full extent of the liabilitiesdetermined. Conclusion The directors of BBB confirm that in respect of the disposal of the business andrelated assets and liabilities of BBN IB and the proposed disposal of theremaining businesses in the Group: (a) negotiation does not allow time for shareholder approval; (b) all alternative methods of financing have been exhausted and the only option remaining is to dispose of its remaining businesses; and (c) by taking the decision to dispose of its remaining businesses to raise cash, the directors believe that they are acting in the best interests of the Company and shareholders as a whole. Unless these disposals are completed administrators will be appointed tomorrow. Arden Partners Limited, which is acting as the Company's sponsor, confirms that,in its opinion and on the basis of information available to it, BBB is in severefinancial difficulty and it will not be in a position to meet its obligations asthey fall due unless the disposals take place according to the proposedtimetable. Enquiries: Andrew ShortisGroup Managing DirectorBerkeley Berry Birch plc 024 7623 2010 Steve DouglasArden Partners Limited 0121 423 8943 This information is provided by RNS The company news service from the London Stock Exchange