Background
Speyside Glenlivet Water Company Limited ("the Company") operated from leased premises in Glenlivet and produced bottled mineral water which was distributed throughout the UK, predominantly to the high end hotel and restaurant sector.
The company was suffering from cash flow problems and the viability of the company was solely dependant on further equity investment. The directors were actively seeking external investment which would sufficiently recapitalise the balance sheet and allow the company to continue trading.
When it became apparent that equity investment could not be secured the directors resolved that due to cash flow difficulties they could no longer continue trading and that it was appropriate to appoint administrators to the company.
Initial appointment
Donald McNaught and Colin Murdoch were appointed by the directors having previously been instructed by the secured lender to carry out a brief independent business review.
Notwithstanding our initial instruction from a creditor the directors were comfortable appointing Invocas Financial knowing we would secure the best possible outcome for all stakeholders.
We concluded that the best way of achieving the objective of the administration was to attempt to sell the business as a going concern and accordingly marketed the business for sale. Business information packs were despatched to interested parties.
We started trading the business following our appointment on 5 March 2009 and this continued for 15 days until the business was sold on 20 March 2009, in order to fulfil the outstanding orders to preserve the goodwill of the customers, suppliers and employees. To facilitate the acquisition of the tax losses by the purchaser, a new subsidiary was created by the directors. The business and assets were transferred to the new company at that date and we controlled trading through that company, until it was sold.
Sale of business
Numerous interests were received from various parties and a business information pack was distributed with negotiations commencing immediately thereafter. A shortlist was quickly prepared with a final preferred bidder status being granted to the eventual purchaser at the end of these negotiations.
As advised above, to maximise the outcome of the sale and in order to enable the purchaser to take advantage of the tax losses of the Company the business and assets were transferred to a new company. This structure should allow the new company to access brought forward trading losses. The tax losses available to the company will be offset by the current net liability of the Company. Dependant on the success of the ongoing business it could generate significant tax savings.
After detailed discussions with the potential purchasers, it was concluded that Highland Spring Ltd had made the best offer as it resulted in a higher dividend to ordinary creditors, based on information available at that time. The offer was formally concluded and the new company was sold to Highland Spring Ltd on 20 March 2009.
Lessons learned
This was a particularly unusual scenario as the Company was so heavily capitalised. The losses carried forward (circa £6million) were high enough to allow for a balance of tax losses still to be available even after offsetting the deficiency to creditors from the Company.
The hive down was a particularly useful vehicle as the purchaser acquires the shares of the new subsidiary and as post appointment trading was carried out through this new company it was much easier to maintain continuity of trading.
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