Archive for March, 2010

The super-rich have long taken their pick of where they live, pay their taxes and divorce. But today it is just as likely to be companies that shop the world for the most favourable regime for their activities.

It is called ‘jurisdiction shopping’ and according to some it is making a mockery of national laws and taxes, with London emerging as the best location for going bust.

The Greek telecoms group Wind Hellas, owned by an Italian investment firm that is run by an Egyptian billionaire, moved to London and almost immediately went bust, raising the question of whether this was the real purpose of the move. The plan cost creditors, including British State-owned banks, tens of millions of pounds.

London’s unenviable reputation as the favourite graveyard for terminally ill companies is the result of badly thought-out European regulations and controversial company insolvency schemes called ‘pre-pack administrations’ that have evolved in the past few years.

City lawyers confirm that in recent years a growing number of companies have chosen to move their headquarters just before going bust. Two of the most high profile have been German car parts maker Schefenacker and Wind Hellas.

Insolvency tourists have not been welcomed by hedge fund manager Bertrand des Pallieres, whose SPQR, which has offices in London and Paris, lost tens of million of pounds in the collapse of Wind Hellas, ultimately owned by Weather Investments, a group run by Egyptian billionaire Naguib Sawiris.

Wind Hellas is one of Greece’s largest telecoms groups, with about four million customers and a turnover of more than £1 billion a year. Previously known as TIM Hellas, it was bought out by private equity groups Apax partners and Texas Pacific Group in 2005 and then sold to Weather in 2007 when it was renamed Wind Hellas in line with Weather’s other European mobile brand Wind Italia.

Last summer the troubled Wind Hellas moved its registered address from Luxembourg to an address in the City of London. Within weeks it went bust, eventually using pre-pack administration.
 

In a normal insolvency an administrator is appointed to realise as much as possible for creditors either by selling assets or the whole business. In a pre-pack, the resale of the company is agreed in advance of administration. In a matter of days, or even hours, a company can appoint an administrator and be resold.

In the process some creditors will lose the money they are owed though in theory it can save a company and jobs that might be destroyed by a prolonged administration.

Wind Hellas became the biggest ever pre-pack – some holders of corporate bonds issued by the company lost a total of £1.3 billion. Des Pallieres claims that administrator Ernst & Young brushed aside an alternative rescue plan and the company was quickly sold on. The buyer was another arm of the Sawiris empire. ‘The pre-pack was used to buy their own company without some of its debts,’ said a furious Des Pallieres. ‘England is known for its good laws, but this is turning it into a bordello for companies to go bust in.’

Des Pallieres also alleges that Matthew Tippetts, the independent director at Hellas who was in charge of the administration and who eventually recommended the sale to Weather, was in fact being paid by Weather in the run-up to the administration. The 33-year-old Tippetts had never been director of any company before his appointment at Wind Hellas.

Des Pallieres plans to sue. Other bondholders also plan to challenge the pre-pack administration in the High Court.

Stefano Songini, investor relations director at Weather Investments, said he had never heard of SPQR nor its allegations and insisted Weather had not orchestrated the Wind Hellas administration. ‘The pre-pack was handled by Hellas on an arm’s-length basis,’ he said. ‘It was an open and transparent process handled by the Hellas board as an independent entity.’ Tippetts could not be contacted.

Richard Nevins, senior partner and head of restructuring at City law firm Cadwalader, explained how London had come to be favoured for administration. ‘There were not that many examples of this until 2002 when the European Insolvency regulations said a company’s ”centre of main interests” could be defined by the address of its registered office. The unforeseen consequence is that it is relatively easy to relocate your centre of main interests,’ he said.

‘Then there is the other quite separate development in English and Welsh law of pre-pack administrations. This means that the management and the senior creditors can just decide to leave the pesky junior creditors behind. We are just now getting into a period of frequent insolvencies.’

It is a concern voiced by many, including leading private equity boss Jon Moulton, who told Financial Mail more than a year ago that he believed pre-packs would eventually be challenged in the courts.

The crucial case in Britain came last year when the company IMO Car Wash went through a pre-pack administration. In that insolvency a High Court judge ruled that the junior debt holders could be cut out of the deal altogether and lose all their money.

It seems that the peculiarities of English law mean that London is simply the best place in the world for a company to die and come back to life not long afterwards.

Read more: http://www.dailymail.co.uk/money/article-1255940/London-bankruptcy-capital-Europe.html#ixzz0jHipc0uo
 

ALMOST one-third of personal insolvencies that occur this month will have been triggered by overspending during Christmas, it has been revealed.

Figures released by R3, the insolvency trade body, believe there will be 150,000 personal insolvencies across the UK this year. But a survey, which included dozens of regional IPs, showed that 31 per cent of those who become insolvent this month will be as a result of the festive period. These figures come as no surprise to R3′s Midlands region chairman James Martin, a partner …

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Figures released today by insolvency trade body, R3, show that a quarter (26%) of Debt Management Plans (DMPs) will last ten years or more, even though a DMP is meant to be a short-term repayment plan between an individual and their unsecured creditors.

R3 President, Peter Sargent commented:

“DMPs can play an important role in offering a manageable solution to individuals who are able to pay back their debts. However, the sheer length of some plans indicates that the amount of debt these individuals have is too large for a DMP. By entering into these inappropriately lengthy plans people become slaves to their debts.”

“Moreover, our figures show that a third (30%) of individuals who are currently bankrupt or in an Individual Voluntary Agreement (IVA) used to be in a DMP. The volume of those who go from DMPs into a formal insolvency procedure suggests that, in some cases, DMPs prolong distress when another procedure would have been more appropriate to start with.”

R3′s survey also reveals that twenty-two per cent of individuals in a DMP say that they were not asked for proof of their income or expenditure before their plan began.

Peter Sargent adds:

“It is incredible that organisations set up DMPs without these vital details. If this information is not verified at the start the monthly payments may be set too high, dooming the plan from the outset.”

R3′s research also finds:

- 46 per cent of IPs have seen DMPs fail because the monthly repayments were too high.

- 52 per cent of IPs have seen individuals being ‘pushed’ into DMPs by creditors.

- And 35 percent of individuals in a DMP say that other options for dealing with their debts, such as an IVA or bankruptcy were not discussed before starting a DMP.
 

The UK’s leading debt charity, the Consumer Credit Counselling Service, says it is concerned about the high rates of insolvency in Wiltshire where almost 10 per cent of the working population are struggling with their finances.

The service has looked at the recent insolvency figures which show that at 9.3 per cent the number of people taking out Individual Voluntary Arrangements in Wiltshire is higher the national average of 9.1 per cent.

The service is urging people in Wiltshire who are struggling with debt to seek help from a free source of advice as soon as they realise they have a debt problem.

IVAs, which usually consist of affordable monthly payments over 60 or 72 months with creditors then writing off the rest of the debt are one of the solutions that the debt charity can recommend to those it counsels for debt problems.

In order to extend its service to support people through the IVA process, the counselling service has set up a limited company and if there are any profits from the company this will go back to the charity.

On average, clients have 61 per cent of their debt written off and the counselling service has managed to get £35 million written off on behalf of its clients.

Jackie Westerman, an insolvency practitioner with the service, said: “An IVA is one of several solutions for those facing unmanageable debt, and for some people, it is the most appropriate.

“I would urge anyone in Wiltshire who is struggling under a burden of debt to contact the CCCS for free advice. CCCS will assess your situation and recommend a way forward.”

Swindon accountant Rob Harman, a partner in Morris Owen, said the figures may not necessarily be cause for undue concern.

“Without digging further into the figures I don’t read anything too sinister in the Wiltshire percentages leading the national picture,” he said.

“However I do fully agree with the underlying message. It is essential that when someone gets into debt problems they don’t bury their heads in the sand.

“Failing to communicate with your creditors will only make matters worse.”

Ring the CCCS free phone helpline on 0800 138 1111 or visit the website at www.cccs.co.uk.

It would seem that more Britons will be caught in the trap of not being able to pay off their debts, but not having enough money to go bankrupt, as the Government is set to increase its bankruptcy fees by £90.

As of April 6, the Insolvency Service will raise its bankruptcy petition fees to £450, from £360. An extra court fee of £150 brings the total cost of declaring yourself bankrupt up to a significant £600.
 
Although the extra court fee can be waived if a debtor is on benefits, those struggling with debt repayments will most certainly find it difficult to scrape together even more money for a bankruptcy petition.
 
It is thought that more people will end up in informal debt management plans (DMPs). There are currently no recorded or published figures for these.
 
Some debt campaigners have called the fee hike a cynical ploy by the Government to lower record-breaking high insolvency figures.
 
Kevin Still, debt expert and director of debt solution provider Atlantic Financial Management, has said: “We have found a significant rise in the number of people requesting bankruptcy assistance where they have very limited disposable income and rising credit card debts. The choice between a Debt Management Plan and going bankrupt is a personal one, but requires professional debt advice before making such a major financial decision that may have a long-term impact.”
 
A spokeswoman has defended the decision, saying: “Over the last year, the average unsecured debt in debtor petition bankruptcies has been around £33,000. Even with the new higher petition deposit cost, it is not unreasonable to expect those getting the benefit of writing off this debt to pay a proportion of the cost.” 
 
The Government has also proposed changes to debt relief orders, which could mean that Britons with small pension funds will be able to use this form of debt management in future.
 
The Department for Business is consulting on these changes, in order for people who were previously ineligible for debt relief orders (DROs) to now take them out and wipe out modest debts within a year.
 
DROs were introduced in April 2009 and are an alternative to bankruptcy, debt management plans and individual voluntary arrangements. Designed for people with assets worth less than £300, this used to disqualify people with pension funds.
 
In order to use a DRO, people must have debts of under £15,000 and have less than £50 extra income each month after paying tax, national insurance and other household expenses. In the first nine months of DROs being introduced, almost 12,000 Britons have used them.  
 
Business Minister Ian Lucas told the BBC: “Following representations from independent money advisers, I’m proposing a common sense change to ensure that vulnerable people with a very small pension pot are treated fairly.”