VE and Pre-Packs

There was an interesting report in today’s FT on the case of Ve Interactive, a UK company once allegedly worth more than $1 billion (at least they had several hundred employees) which went into administration after making heavy losses. It is alleged that CEO and founder David Brown mismanaged the company and he has subsequently be made bankrupt.

The business was taken over by a consortium of investors (including Douglas Borrowman and Mark Pearson) some of whom became directors before it went into administration. It was subsequently sold quickly to those directors via a pre-pack (for £2 million).

But the administration (by Smith & Williamson) has been challenged in court and they have been removed by the court. Mr Brown and two former members of the consortium mounted the challenge based on the claim that the administrators were “completely blind” to the conflict of interest in selling the business to the directors. They also claim the sales process was mishandled and bidders only had one day to make an offer. They say there was no chance of a meaningful bid being made because of insufficient information being provided to potential buyers. Ve Interactive is now trading as “VE” and is owned by Ve Global UK Ltd.

At least that’s the gist of the story so far as one can understand such complex events.

In essence this is a typical example of a pre-pack administration which I have commented on many times in the past. A business is sold in extreme haste, often to related parties as in this case. The process happens so quickly that there is no chance of adequate marketing of the business to get a fair price. The administrators can ignore anyone but their chosen buyer and deter them by restricting information and giving them little time to raise finance or adequately consider the matter.

In summary, pre-packs are ethically dubious, legally corrupt and should be outlawed as soon as possible. As I said only recently in an article about events at Carillion: “Regrettably in the UK, insolvency law seems to have been devised mainly in the interests of insolvency practitioners and bankers. It is time for a complete reform of the law and practices in this area.”

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Obituary – Steve Marshall

The Daily Telegraph ran a lengthy obituary on Steve Marshall today, who died recently at the young age of 60. It covered his financial career in a not particularly complimentary way although some might say he took on a lot of difficult positions.

He first came to public prominence when he became CEO of Railtrack after Gerald Corbett was forced to resign, despite having minimal experience of the railway industry. Railtrack was part of the former British Rail that had been privatised and then ran into a number of problems. Indeed the financial difficulties seemed to escalate under Marshall and the company had to be nationalised (Marshall promptly resigned) as it was on the verge of bankruptcy according to the Government. Shareholders got some compensation but only after a fight. The business was renamed Network Rail and is a rather peculiar private “not for profit” company. If Jeremy Corbyn ever gets elected, he may change the status and ownership yet again.

Steve Marshall was an accountant by training and served as finance director of Thorn EMI before his stint at Railtrack. The Telegraph mentions the disappointment of some bondholders in Thorn EMI when the company was sold to Nomura.

After Railtrack, Marshall took on the role of troubleshooter being involved with Queens Moat Hotels, Delta, Torex Retail, Balfour Beatty, Biffa and Wincanton. The Telegraph has nothing positive to say about any of these roles.

I had some contact with Marshall when I represented shareholders in Torex Retail. We were so concerned about the actions of Marshall, and the company’s banker’s (RBS) after the company ran into financial difficulties due to an accounting fraud that a requisition for an EGM to remove him and the other directors and replace them was submitted. There was a good chance of winning the vote. This was pre-empted when Marshall promptly invoked a “pre-pack” administration – a good example of the dubious nature of such transactions.

There were other offers on the table to that from the buyer preferred by the board and RBS but they were ignored. I never did understand why, but it was certainly plain that the interests of RBS seemed to take priority over that of the ordinary shareholders. It has of course subsequently become apparent that RBS treated many of their customers who got into financial difficulties and got involved with their “Global Restructuring Group” in the most appalling manner – see the internet for lots of examples of how money was extracted and business ownership coerced.

So in conclusion, are there any investors who gained from Marshall’s activities in the companies with which he was involved? Now is the time to speak out if so!

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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