Investigation into the conduct of the directors Financial position of the company Objectives of the administration

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1 Groundpoint Limited in Administration Statement to Creditors pursuant to Rule 2.33 of the Insolvency Rules 1986 and Statement of Proposals under Paragraph 49 of Schedule B1 of the Insolvency Act Introduction 1.1 I was appointed Administrator of Groundpoint Limited ( the Company ) on 14 November 2011 by the Company. 1.2 I now write, pursuant to paragraph 49 (1) of Schedule B1 to the Insolvency Act 1986, to submit my proposals for achieving the objectives of the administration. This report and Appendix A contain the information required by Rule 2.33 of the Insolvency Rules The required statutory information is set out as Appendix A. 2. Summary 21. The company s principal activity is that of general construction and civil engineering. 22. I am currently seeking to collect the book debts of the company with the assistance of PH Warr Plc and the Directors. 3. Circumstances giving rise to the appointment of an administrator 3.1 The company was incorporated on 20 August 2003 and carried out ground work and civil engineering work, much of which was for large construction companies. 3.2 The Company has recently suffered a number of bad debts including one to ROK. In addition to this, some customers had been withholding payment once a job had been completed knowing that the Company did not have the resources to take any legal action. 3.3 The directors were of the opinion that as a result of bad debts the financial pressures on the Company would increase in the foreseeable future. 3.4 The Company has a debt of some 140,000 to a connected company DA Contracting (Southern) Limited ( DA ), who in turn owe 150,000 to HM Revenue & Customs in respect of VAT. DA is insolvent and the directors intend to file a notice of intention to appoint an Administrator in due course. 3.5 The directors have advised me that due to the current economic climate they do not intend to continue as groundwork subcontractors. 3.6 Once a company enters an insolvency procedure it can prove more difficult to collect debts and therefore the directors decided that it was in the interests of the Company s creditors to trade for a short time in the period leading up to my appointment, in order to maximise debt collection. 3.7 The company is insolvent. 4. The manner in which the affairs and business of the company have been managed and financed since the date of the administrators appointment 4.1 The company ceased trading on 7 November 2011 the Company s employees were made redundant. 4.2 The Company had debtors of 227,450 at the date of my appointment. I have instructed PH Warr Plc to assist in the collection of the book debts. 4.3 A summary of the Company s Receipts and Payments since the date of my appointment can be seen at Appendix B. You will note that there have been no transactions to date. Page 1 of 6

2 5. Investigation into the conduct of the directors 5.1 The Administrator is required to investigate the conduct of the directors and send a report to the Insolvency Service. 5.2 If creditors have any matters they wish to bring to my attention they should do so in writing as soon as possible. 6. Financial position of the company 6.1 Barclays Bank ( the Bank ) hold a fixed and floating charge over the Company s assets, however it is my understanding that there are no monies outstanding to the Bank. 6.2 Under the provisions of Section 176A of the Insolvency Act 1986 the Administrator must state the amount of funds available to unsecured creditors in respect of the prescribed part. This provision only applies when a Company has granted a floating charge after 15 September The prescribed part will not apply in this Administration unless a distribution is made to the Bank. Therefore the net realisations of the company, total realisations less costs, will be available to unsecured creditors after the preferential creditors have been paid in full. 6.4 I have instructed PH Warr Plc construction surveyors to assess the collectability of the book debts, they are still working on this. I expect to have a better appreciation of the expected realisations at the creditors meeting. 6.5 I have not included an estimated to realise figure in respect of the book debts in this report as I am of the opinion that it may have a detrimental effect on the level of debtor realisations. 6.6 It is expected that a dividend will become available to preferential creditors in the Administration. However the timing and amount of a distribution will be dependent on the level of debtor realisations. 6.7 It is uncertain at this time if any funds will be available to unsecured creditors. 6.8 I have requested a statement of affairs from the directors in accordance with Rule 2.28(2) of the Insolvency Act 1986 and under Paragraph 47(1) of Schedule B1 of the Insolvency Act The directors have a period of 14 days in which to submit the Statement of Affairs to me. This period has not yet expired. 7. Objectives of the administration 7.1 Paragraph 3(1) of Schedule B1 to the Insolvency Act 1986 ( the schedule ) provides that the administrator of a company must perform his functions with the objective of; - Rescuing the company as a going concern; or Achieving a better result for the company s creditors as a whole than would be likely if the company were wound up (without first being in administration); or Realising property in order to make a distribution to one or more of the secured or preferential creditors. 7.2 The administrator should perform his functions in the interest of the company s creditors as a whole and with the objective specified in subparagraph (1)(a) of the schedule unless he thinks either: That it is not reasonably practicable to achieve the objective, or That the objective specified in paragraph (1)(b) of the schedule would achieve a better result for the company s creditors as a whole. Page 2 of 6

3 7.3 The administrator may perform his functions with the objective specified in subparagraph (1)(c) of the schedule only if: He thinks that it is not reasonably practicable to achieve either of the objectives specified in subparagraph (1)(a) and (b), and He does not unnecessarily harm the interests of the creditors of the company as a whole. 7.4 In this case it was not deemed possible to rescue the company as a going concern because the value of the assets is substantially less than the liabilities. The second objective, that of achieving a better result for the company s creditors as a whole than would be likely if the company were wound up was achievable because it maximised the debtor realisations available to creditors. 8 Proposals to achieve the objective of the administration 8.1 We propose that the following steps now be taken; Maximise collection of trade debtors with the assistance of PH Warr Plc construction surveyors and the directors. Investigate and, if appropriate, pursue any claims that the company may have. Make a distribution to the preferential creditors as funds allow. All such other actions and general exercise of the administrators powers as we consider in our discretion necessary in order to achieve the purpose of the administration. 8.2 If required by a resolution of the creditors in accordance with paragraph 58 of Schedule B1 to the Insolvency Act, establish a Creditors Committee. The purpose of the committee will be to represent the interests of the creditors as a whole, and is required to perform certain statutory functions. In addition it may be required to assist the administrators generally acting as a sounding board to obtain views on matters pertaining to the administration. 8.3 Assuming one is formed, consult with the Creditors Committee at appropriate intervals concerning the conduct of the administration. In my experience a creditors committee can be extremely helpful where: An intimate knowledge concerning the running of the business is required, or There is substantial dissatisfaction at the director s conduct, or It is likely that legal action will be required. 8.4 In this case I am not aware of any significant issues arising in these areas and therefore the costs associated with the administration of a committee may outweigh the benefits it could bring to creditors. However if creditors desire such a committee I will of course be happy to form one. 9 Exit routes from administration 9.1 Legislation provides for several exits from administration: 9.2 Automatic end of administration the appointment of an administrator shall cease to have effect at the end of the period of one year. 9.3 Court ending administration on application of administrator on application a Court may provide for the appointment of an administrator of the company to cease to have effect from a specified time. Page 3 of 6

4 9.4 Termination of administration where objective achieved if the administrator thinks that the purpose of administration has been sufficiently achieved in relation to the company he may file a notice in the prescribed form with the Court and Registrar of Companies and then the appointment shall cease to have effect. 9.5 Court ending administration on application of creditor on application the court may provide for the appointment of an administrator of the company to cease to have effect at a specified time. 9.6 Public interest winding-up - this applies where a winding-up order is made for the winding up of a company in administration on a petition presented under either public interest grounds or by the Financial Services Authority. 9.7 Moving from administration to creditors voluntary liquidation this applies where the administrator thinks that the total amount which each secured creditor of the company is likely to receive has been paid to him or set aside for him and that a distribution will be made to unsecured creditors of the company. 9.8 Moving from administration to dissolution if the administrator of a company thinks that the company has no property, which might permit a distribution to its creditors, he shall send a notice to that effect to the registrar of companies and on registration the appointment shall cease to have effect. 9.9 If sufficient funds are realised to enable a distribution to unsecured creditors then as soon as practicable, the administrator proposes that the company is placed in liquidation. It is proposed that the administrator become liquidator without a further resolution of the creditors. Creditors should be aware that in accordance with Paragraph 83(7) to Schedule B1 of the Insolvency Act 1986 and Rule 2.117(3) of the Insolvency Rules 1986, creditors may nominate a different person as the proposed liquidator, provided that the nomination is made after the receipt of the administrators proposals and before the proposals are agreed by the creditors If no distribution is available for the unsecured creditors then the company shall move to dissolution in accordance with Paragraph 84 of Schedule B1 of the Insolvency Act 1986 at the appropriate time. 10 Administrators remuneration and disbursements 10.1 The administrator s remuneration is determined in accordance with Rule of the Insolvency Rules as amended by the Enterprise Act We set out as Appendix C, as required by Statement of Insolvency Practice 9, a summary of the information required to enable the Committee to form a judgement as to whether the proposed fee is reasonable having regard to all the circumstances of the case The Creditors Committee (if any) should determine the basis of the remuneration of the administrator and his staff. The remuneration shall be fixed either 10.3 As a percentage of the value of the property with which he has to deal; or 10.4 By reference to the time properly given by the administrator and his staff in attending to matters arising in the administration ( time costs ) In arriving at that determination, regard shall be given to the following matters The complexity (or otherwise) of the case; Any respects in which, in connection with the company s affairs, there falls on the administrator any responsibility of an exceptional kind or degree; The effectiveness with which the administrator appears to be carrying out, or to have carried out, his duties as such; and The value and nature of the property with which he has to deal. Page 4 of 6

5 10.6 It is my normal practice to seek time costs as the basis for my remuneration and I propose this basis for this matter. In this case I anticipate that the administrator s time costs will be in the region of 18,000 (excluding VAT) for the entire assignment. Out of pocket expenses are charged at cost. Mileage is charged at standard rates, which comply with Inland Revenue limits, or AA recommended rates. A schedule of my firms charge out rates is attached as Appendix D Attached as Appendix E is a breakdown of the time costs incurred since the date of my appointment You will note that my firm has spent hours dealing with matters arising during the course of the Administration, incurring total chargeable costs of 5,043 which provides an average charge out rate of per hour. I have not drawn any fees as Administrator to date It is not clear that there will be insufficient property to enable a distribution to the unsecured creditors and in the event that no creditors committee is formed the basis of the administrator s remuneration will be fixed by a resolution of a meeting of creditors. 11 Pre-appointment costs and expenses 11.1 Rule 2.33(2B) of the Insolvency Rules 1986 sets out the information to be provided in respect of pre-appointment costs. 12 Statement of affairs a. Pre-appointment costs were agreed by the directors of the Company on 6 October 2011 as a fixed fee in the sum of 8,000 plus VAT, as detailed in our letter of engagement dated 5 October b. The work carried out pre-appointment was in respect of advice to the Company and preparing the relevant documentation to place the Company into Administration. c. The work carried out pre-appointment related to the appointment and could only be carried out prior to the Administration. d. The fee charged in respect of work carried out pre-appointment was in the sum of 8,000 plus VAT. e. The amount of 8,000 plus VAT was paid in full prior to my appointment as Administrator. f. The Pre-appointment costs were met by the Company. g. There are no outstanding pre-administration costs A statement of affairs has not yet been submitted but a list of the company s creditors including their names, address and details of their debts, including any security held is attached at appendix F. Page 5 of 6

6 13 The prescribed part 13.1 Barclays Bank ( the Bank ) hold a fixed and floating charge over the Company s assets guaranteeing the liabilities of another Company owned by the directors. However it is my understanding that the primary borrower is servicing the primary liability and that there are no monies claimed by the Bank against the Company Under the provisions of Section 176A of the Insolvency Act 1986 the Administrator must state the amount of funds available to unsecured creditors in respect of the prescribed part. This provision only applies when a Company has granted a floating charge after 15 September The prescribed part will not apply in this Administration unless a claim is received from the Bank Therefore the net realisations of the company, total realisations less costs, will be available to unsecured creditors after the preferential creditors have been paid in full. 14 Creditors Claims 14.1 Secured Creditors The Company s records show that there are no amounts due to secured creditors Preferential Creditors Employees preferential claims for arrears of wages and holiday pay have been calculated at 4,788 based on the information provided in the Company records Connected creditors The Company has a debt of some 140,000 to a connected company DA Contracting (Southern) Limited ( DA ), who in turn owe 150,000 to HM Revenue & Customs in respect of VAT. DA is insolvent and the Directors intend to file a notice of intention to appoint an Administrator in due course Unsecured Creditors The unsecured creditor claims are estimated at 540,688. No steps have been taken to agree creditor claims at this time. 15 EC Regulations on Insolvency Proceedings 15.1 I am required under the Insolvency Rules 1986 to state whether and if so the extent to which the above regulations apply to this Administration. In this particular case the EC Regulations will apply and the proceedings will be main proceedings as provided by Article 3 of the aforesaid regulations. 16 Creditors Meeting 16.1 A meeting of creditors is to be convened at these offices on 15 December at 11am to consider the proposals set out above. I enclose formal notice of that meeting on Form 2.20B together with a proxy form and Proof of Debt. 17 Conclusions 17.1 That concludes my proposals. If you have any queries please contact Katie Young or me. Yours faithfully for Groundpoint Limited Peter Hall Administrator Page 6 of 6