Insolvency Practitioners London News

Insolvency Practitioners and: the use of Provisional Liquidation; Agricultural Businesses and Air Berlin

It seems that barely a day goes by without a news story with an insolvency angle appearing. If it’s not about interest rates or record debt per household, then it’s about Brexit or even the retrospective introduction of the so called “corridor tax” and its possible effect on SMEs. It’s a full time job just to keep up, and important too, as all of these things and more have implications for insolvency, which is where we come in as Insolvency Practitioners. It’s our job to help businesses facing insolvency, and where we can, turn them around and get them back on the path to profitable trading.

In this article we look at 3 examples of insolvency that have caught our insolvency specialists’ eyes this month:

• The use of Provisional Liquidation as an insolvency procedure
• The increased risk of insolvency faced by agricultural businesses in South East England
• The difficulties being faced by Air Berlin.

A Provisional Liquidator Can Safeguard Creditors’ Interests

In this recent case, thirteen companies were placed in provisional liquidation following an investigation by the Companies Investigation Branch of the Insolvency Service. Eleven of the companies were involved in the acquisition, development and/or operation of The Convent Hotel & Spa in Woodchester, near Stroud, Gloucestershire, that traded as a hotel and music venue. The two other companies, The Convent in the Hills Limited and The Convent in the Hills 2 Limited raised investments to acquire land and develop a separate project in Norway.

Private individuals entered into investor agreements with at least eight of the companies raising a minimum of £7.8 million. The land and buildings of The Convent Hotel & Spa are currently under the control of LPA receivers who were appointed in respect of a secured charge held by a financial institution. The companies all traded from The Convent, Convent Lane, Woodchester, Stroud, Gloucestershire, GL5 5HS.

Provisional Liquidation and The Role of the Provisional Liquidator

Provisional liquidation is an emergency insolvency procedure that is governed by the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 (SI 2016/1024). It enables a provisional liquidator to be appointed by the court, but only after the presentation of a winding up order.

The main reason for appointing – and the role of – a provisional liquidator is to protect assets in the possession or under the control of the companies, pending the determination of the winding-up petitions. The provisional liquidator also has the power to investigate the affairs of the companies insofar as it is necessary to protect assets including any third party, or trust monies, or assets in the possession of, or under the control of the companies.

This case is now subject to High Court action and no further information will be made available until petitions to wind up the companies are heard in the High Court in late September 2017.

This is a perfect example of how by using a provisional liquidator, the interests of the creditors (in this case the creditors are the individual investors) can be safeguarded and the assets protected by an Order of the Court.

The provisional liquidator is a little used and little known insolvency procedure. Its use in this case highlights the importance of taking early advice from insolvency practitioners, who are well placed to advise on the available options open and the best solution.

Agricultural Businesses Face Increased Risk of Insolvency

Research by R3, the restructuring and insolvency trade body has shown that agricultural businesses in the South East of England are now at the highest risk of entering into an insolvency procedure in the next 12 months, compared to data from this time in 2016.

The data shows that for August 2017, over one in five agricultural businesses in the region (22%) are now at a higher than normal risk of insolvency. This equates to over 2,749 businesses, a rise of 5.6 % since July.

This is a long running story that shows little signs of tailing off as the agricultural industry continues to face many difficulties. Quite apart from the role of the insolvency practitioner in helping these businesses who are facing insolvency, it also means that as the market place becomes less congested we progressively become more reliant on imports and the supermarkets pass on the increased costs to the consumer.

Air Berlin Filed for Insolvency on 15 August 2017

One of our key areas of expertise as insolvency practitioners is the travel industry, not least because it can be volatile and very susceptible to changing market conditions. In this case, Air Berlin recently stated that it had been notified by one of its major shareholders, Etihad Airways: “that it no longer intends to provide Air Berlin with financial support.”

Brief Details of this Insolvency

Abu Dhabi-based Etihad owns 29% of Air Berlin and has provided financial support for the airline since becoming a shareholder in 2011. In the meantime the German federal government has stepped in with a bridging loan in order to maintain flight operations for the long term. All flights operated by Air Berlin and Austrian subsidiary Niki will continue as planned. Air Berlin would have otherwise been required to immediately suspend operations.

It is understood that negotiations between Air Berlin and Lufthansa and another airline about the acquisition of business units are far advanced so that over the next few weeks a decision can be finalised by Lufthansa and a further airline on the sale of the assets and the routes operated.

Lufthansa says it is:

“jointly with the German government” in supporting Air Berlin’s restructuring effort. In addition to ongoing negotiation “to take over parts of the Air Berlin group”, Lufthansa says it is “exploring the possibility of hiring additional Air Berlin staff.”

Etihad describes Air Berlin’s insolvency filing as:

“extremely disappointing for all parties, especially as Etihad has provided extensive support to Air Berlin for its previous liquidity challenges and restructuring efforts over the past six years”. They go on to point out that despite its injection of €250 million in April, “Air Berlin’s business has deteriorated at an unprecedented pace, preventing it from overcoming its significant challenges and from implementing alternative strategic solutions.”

A number of other interested parties have emerged, with particular interest in taking over some of the Air Berlin routes. At the same time major UK operators are participating in the ongoing discussions to ensure that all obligations will be met and travellers are not going to be left high and dry.

Over time we have seen that as the world gets a little smaller, the holiday and airline industries continue to consolidate in order to survive, and the resultant insolvencies can be complicated and painful. See some of our Testimonials/case studies in this area.

Contact us if Your Business is Facing Insolvency

As these news stories show, the reasons for insolvency are many and varied. The role of insolvency practitioners is to restructure, protect and preserve insolvent businesses as far as possible. If you are a director of a business that is facing insolvency, call us on 0208 088 0633 or contact us for an initial FREE discussion.