Acquisition of Assets & Trading of a Loss Making Business
Essential Elements of Our Service Offering Required to Complete a Transaction of This Nature
Acquisitions, Business Sales, Exit Planning
MBI, Private Equity, Raising Finance, Asset Finance, Invoice Finance
Business Plans,
Due Diligence, Turnaround Management
We were approached by one of the top four banks to explore the possibility of us becoming involved with a business in which they had provided a significant term loan and overdraft secured against the company’s assets. They were concerned that whilst the value of the net assets was greater than the combined loan and overdraft of the business, it was making trading losses in the order of £500k per annum and if this situation continued and the bank were forced to call in the debts the assets would be difficult to liquidate at sensible values as a fire sale situation would arise.
On approaching the shareholders of the company they were initially hostile to us but nonetheless agreed to meet as it was the bank that had suggested it may be of mutual benefit. On meeting we established a good line of communication and won over their confidence, at which point we offered to carry out an initial review which would be of benefit to them as well as the bank. The key items that came out of that review were ·
- Incumbent management had taken control of the company following the death of the founder and had neither his entrepreneurial skills or ability to improve trading
- Without a significant improvement to trading been achieved the incumbent management had a period of about 2 years before running out of working capital
- Without a major change to the companies service offering they were in danger of losing existing blue chip clients and would not be in a position to secure any new ones
- The shareholders were reliant on the property assets to provide both their lifestyle and as a future pension
We then shared this information with both the bank and the shareholders of the company and suggested if agreeable to all parties we would put together a credible business plan that would provide an acceptable compromise for all. This resulted in us proposing the following turnaround option
- We should acquire the non property assets and all the business of the company in NEWCO at a discount to book value providing some headroom for our turnaround actions to take effect
- OLDCO would retain the property assets and become a property management company owned by the existing shareholders
- Newco funding would be made up of
- share capital
- directors loans
- bank term loan
- bank confidential invoice discounting facility
- sale & lease back of assets
- potential to extend debt funding in the event of NEWCO identifying acquisitions
The proposal met with the approval of all parties and the deal completed for the following key reasons
- OLDCO shareholders benefited by
- No further erosion of the net value of their property assets
- Regular income paid to them by NEWCO by way of rent
- Being able to pursue the lifestyle they wished as they had no ongoing management responsibilities
- Bank benefited by
- Reducing their exposure to the company
- Transaction fees
- Having a management team in place they were comfortable with
- NEWCO shareholders benefited by
- Acquiring a company’s trading assets and business at a sensible price
- Inheriting an experienced workforce
- Having a spring board for further growth both organically & by acquisition
- Being able to control deal costs because of the common goal congruence created
Recovery and Restructuring –
Insolvency Options Involving a Pre-Pack Administration Allowing a Buy Back by
Management to go Forwards with a Restructured Profitable Business
Essential Elements of Our
Service Offering Required to Complete a Transaction of This Nature:
Raising
Finance, Business Viability Review, Lender Negotiations, Insolvency Options,
Business Plan, HR & Employment Services, Legal Documentation
When
a long established Direct Mailing House suffered from a downturn in trade, the
Directors required advice as to the options that were open to them going
forwards, both from a personal point of view to ensure they complied with their
legal responsibilities as Directors, and the options available to continue with
the business going forwards.
In
this case, the benefits of planning ahead with a commercial approach proved
fundamental when the business developed financial problems. The Company had
been dependent on a loan provided by its Parent Company to provide sufficient
working capital when the bank facility could not be increased previously. When
the loan was made by the Parent Company, it was formally documented and a
debenture was created and registered at Companies House, meaning that if the
Company experienced financial difficulty it had a number of options available
to it and would be paid in preference to unsecured creditors. The debenture was
created in 2009, the Company entered insolvency proceedings in 2011, this shows
the benefit of always structuring things in a commercial way to deal with any
eventuality.
When
the downturn in trade continued for more than a short time, a business
viability review was undertaken which involved preparing cashflow forecasts to
show when the company would run out of working capital based on the projected
trading. When the review was completed, the option was for the Parent Company
to provide additional funding which would be very risky based on the projected
trading position, or for the Directors to consider other options. The Directors
took insolvency advice and had all the options explained to them as to what they
could do.
After
carefully considering all options, the Directors accepted that there was no
alternative but to place the company into Administration. Taking account of the
circumstances in this case, and the fact that the Parent Company was the major
creditor with security, it was agreed that the best option for creditors would
be to try and sell the trade and assets of the Company in a Pre-Pack
Administration. The Insolvency Practitioner has to go through a rigorous
process in such a situation to ensure that best value is obtained for
creditors. The process involves obtaining a valuation of all assets,
consideration of any third party offers, and what is best overall taking
account of all factors.
In
this case the Directors wished to submit a bid to acquire the trade and assets
of the business in order to be able to continue with the business. This involved
using a new company (“Newco”) to do this, preparing a business plan
incorporating financial forecasts, and raising finance. This involved a lot of
work in a very short space of time, to ensure that the Newco would be able to
make an offer and be able to operate within the required timeframe.
The
business was marketed and another interested party put in a bid for the trade
and assets alongside the offer from management. Directors are often alarmed in
a Pre-Pack situation that the business has to be offered for sale, this is a
requirement and there is no other option. In this case the marketing was handled
in a professional and confidential manner by the Insolvency Practitioner and
confidentiality was maintained at all times allowing the business to continue
trading without disruption, whilst offers for the business were received.
The
offer from management was successful and following the appointment of the
Administrator, the Directors were able to immediately complete the acquisition
of the trade and assets with the legal agreement having been negotiated prior
to the Administration. The company continued trading in a seamless manner and
customers were not even aware that the company had entered Administration. In
the majority of cases, as management know their business they are usually in a
position to make the best overall offer to the Administrator in such a
situation. It is not always the highest offer that will be accepted, other
factors are taken into account, for example are jobs being saved.
In
this case the name of the business remained the same, in such circumstances
where there are common directors in the Oldco and the Newco, there are legal
requirements that have to be complied with in relation to the notification to
creditors.
Following
completion of the acquisition of the trade and assets, management had to reach
agreement with suppliers regarding continued support, and deal with the
transfer of staff to the Newco which usually automatically happens under
“TUPE”. This means that all staff are transferred with the same terms and
conditions as previously.
Post
completion there were numerous matters to deal with, all of the equipment used
by the company was leased and lenders had to be spoken to and new agreements
negotiated. In such a situation, the equipment providers are usually happy to
support the Newco, as the other option is to repossess their equipment and sell
it in a forced sale situation, which in the current economic climate is the
route of last resort. There were other matters that had to be dealt with by
advising suppliers such as the Utility suppliers, the Council in relation to business
rates, and other sundry suppliers.
Finance
for the Newco was provided by way of an invoice discounting facility that had
been negotiated on the basis of the profile of the previous business.
The
business is now trading profitably due to the actions taken which has allowed
the business to be restructured and not be dragged down by its historic losses.
When Directors are faced with such a situation where their business is
struggling and facing financial difficulty, the approach is to often ignore the
issues and not take actions that would protect the business in the long term,
which may possibly involve an insolvency option. By not taking advice at an
early stage, Directors are jeopardising their business, and in many cases their
whole personal situation as often they will have lent money to the business or
given personal guarantees. To quote the Directors after the above case had been
successfully concluded “Why didn’t we do it sooner?”
Outsourced Acquisition
Search
Essential Elements
of Our Service Offering Required to Complete a Transaction of This Nature
Project
Management , Data Management
Mergers & Acquisitions, Corporate Finance
We were
approached by a large multi site organisation that had a commercial property
lease due to expire and were looking to improve on their site offering. They
had been through the usual route of property searches but had decided that
making an acquisition of a business as a going concern and taking over the
target companies property as part of the deal could well be a better proposal
for them as they would benefit from not only an enhanced property but a wider
service offering as well.
The problem
with this strategy was that our client being an organisation of considerable
size were rightly concerned that should suitable target companies be identified
and approached by our client direct to discuss potentially acquiring them, targets
may well be worried that by divulging their potential interest in an exit to
such a large competitor could prove to have negative connotations for them and
therefore opportunities lost before reassurances by our client could be put in
place. In addition our client did not wish to create a situation in the market
place that made them appear to be too keen to make an acquisition as valuations
and their own reputation could be adversely affected.
To alleviate
this problem the project was outsourced to us and split into three distinct undertakings
1.
To
produce a research report identifying companies within a strict geographical
area that met with our clients specific criteria and rank them in order of our
perceived suitability.
2.
Following
discussion with our client to approach the three top ranked companies on their behalf,
initially on a covert basis but making it clear we were acting for a company
who are genuinely acquisitive with funds in place and that may have an interest
in acquiring them, thus establishing if in fact there was any appetite for an
exit.
3.
Formally
make introductions between our client and the targeted companies if there was
any perceived benefit in moving the process to the next stage.
This project
resulted in the following
1.
The research
was completed and our findings presented to our client explaining our thought
process behind the ranking and our client concurred with us that in particular
the number one ranked target company had huge potential of being both a good
fit geographically and by type of operation.
2.
Having
contacted the agreed three top ranked companies the number one ranked target
company expressed some initial interest and were interested to move the process
to the next stage, the number two ranked company were not interested in any discussion,
whilst the number three ranked company were not interested in an outright exit
but would potentially listen to joint venture proposals.
3.
Introductions
were made between our client and the number one ranked target company which
lead to formal acquisition proposals, the number three ranked company were
informed by us that at this stage only and outright exit of current
shareholders would be entertained by our client however should their position
change they should re contact us so we may arrange for introductions to our
client to be made.
Acquisition
of a Company Owned by Institutional Investors
Essential Elements
of Our Service Offering Required to Complete a Transaction of This Nature
Acquisitions, Business
Sales,
MBI, Private
Equity, Venture Capital, Raising Finance, Asset Finance, Invoice Finance
Business Plans,
Due Diligence, Turnaround Management
Following the
successful turnaround of a business in which management held 15% of the shares
with the rest being held by a number of financial institutions; we were
approached by another venture capitalist that had an investment in a company in
a similar market that was significantly underperforming.
The initial
approach by them was to head hunt management to carry out a similar exercise to
the turnaround just completed; they were informed that as management held
shares they would not be interested in joining the underperforming business;
however that we may be interested in acquiring the company.
On meeting the
venture capitalist concerned a potential acquisition looked an exciting
prospect as the company concerned was of a similar size to that of the one in
which we already held shares in, but in a slightly different but complementary
sector, it was therefore decided to approach our own investors and bank to see
if they would be interested in extending their investments and support
management with an acquisition.
Having received
an in principal yes vote we met again with the incumbent VC in the target
company to establish if they would in fact be prepared to exit their
investment, again an in principal agreement was reached subject to financial
viability. Following this meeting and on securing exclusivity sufficient information
was made available to us to put together to be able to put together a credible
detailed business plan which we first presented to our own investors and in
conjunction with them agreed an offer structure, which facilitated management
increasing their own overall shareholding.
The key deal
elements making it an attractive proposition were
- No
goodwill payment and a discount to net assets
- Funding
largely through asset financing
- Strong
customer base in a parallel sector with the opportunity to cross sell services
and expand overall sales
-
Large
overhead duplication to be saved post deal providing sufficient savings to
curtail losses
- Good
geographic location to improve current network
- Modern commercial
properties with capacity for expansion and increased revenue stream
- Seamless
transaction to provide a business as normal situation for customers and
suppliers
Our proposals
were accepted and the deal completed quickly and without disruption to either
our current or the new business, and integration plans were executed that
provided the rewards as depicted in the business plan.
Project Management of
Contract Tender, and Implementation of Operation to Service
Essential Elements of Our
Service Offering Required to Complete a Transaction of This Nature:
Financial
Modelling, Budgeting and Forecasting, Business Plan, HR & Employment
Services, Legal Documentation, Insurances, Commercial Property
When
a leading supplier of fresh produce to the major supermarkets was invited to
tender for a contract that involved delivery to schools, this involved the
consideration of many additional factors over and above the core business at
the time.
The
contract was completely new and had never been carried out before, therefore
there was no previous history to review as to operational and financial models.
The contract involved delivery to a large number of schools in a day by vans,
this was in contrast to the existing business of using HGV vehicles.
The
main commercial factor when considering the approach to the tender was that the
contract was only initially being granted for a 12 month period, therefore all
commitments in relation to the contract had to be in line with the contract
term to avoid exposing the business to commercial risk if the contract was
terminated after 12 months.
The
major resource required to undertake the contract was commercial vehicles and
drivers, if successful the contract would start within a very short time after
award, therefore everything had to be planned and ready to go operationally if
the tender was successful. The key areas that were covered in assisting with
the tender and operational requirements were as follows:-
A financial
model was built, tailored specifically to the contract to provide accurate
costing information which allowed an assessment of profitability to be
undertaken based on different levels of sales generated.
Route planning
to allow the number of drops in a day to be calculated based on the density
of areas and traffic flows, as the number of drops in a day had a major
impact on the pricing model.
Negotiations
took place with a number of commercial vehicle suppliers to provide
refrigerated vehicles within a short time scale and on flexible terms (no
payment in school holidays). Insurances for the vehicles was arranged in
what is a notoriously difficult area.
The recruitment
process in respect of management and drivers had to take place in advance
of knowing whether the contract would be awarded.
The
tender was successful and the contract awarded for the Midland’s region. The
contract became operational within a very short time scale and detailed project
management was required to ensure everything proceeded to plan.
Over
the next 2 years, further areas were tendered for and successfully obtained.
The additional areas involved tendering as with the original opportunity, but
due to being geographically situated around the country involved additional
matters to be dealt with.
Premises had to
be sourced in each area which involved contacting many property agents,
viewing property, negotiating the leases which had to be short term in line
with the contract length to avoid commercial exposure if the contract was
terminated.
The premises had
to be fitted out to meet required standards in relation to temperature
control.
Management and
staff had to be recruited which involved undertaking the recruitment
process in anticipation of being awarded the contract, carrying out
interviews and making provisional offers of employment based on the
contract award decision.
The
business was successful in obtaining 4 geographical areas around the country
which accounted for approximately 30% of the national contract. The contracts
were successfully re-tendered for at the end of the initial term and the profit
generated from the contracts became a major contributor to the supplier’s
business.
Business Plan – Prepared to
Raise Expansion Finance and to Buy Out a Venture Capital Investor.
Essential Elements of Our
Service Offering Required to Complete a Transaction of This Nature:
Business
Plan, Financial Modelling, Budgeting and Forecasting, Raising Finance,
Legal
Documentation
A leading sales and
marketing agency was expanding rapidly in the summer of 2010 following a period
of new client wins, and in order to fund this continued growth it was
identified that additional working capital would be required.
There was also a Venture
Capital Investor in the business that was looking to exit if possible, having
been involved for a number of years. The Directors were of the opinion that it
would be good for the business if an agreement could be reached with the VC’s
to allow the buyout, at a price that was somewhat lower than historic levels
due to the economic conditions.
A three year forecast
was prepared to show the funding requirements, taking into account the proposed
buyout of the VC Investors. In respect of obtaining the funding required, due
to the current conditions where bank lending is difficult to obtain, other
sources of finance would have to be sourced. A Fund which is backed in
association with the local council was sourced, which would lend SME businesses
up to £1m, and in the appropriate circumstances would also consider equity
investment.
After initial
discussions, a full three year business plan was prepared and agreement was
received to provide funding for the VC buyout and the additional working
capital. The whole process was completed in a six week period allowing the
business to continue with its planned expansion.
By the middle of 2011
the updated cashflow forecasts indicated that further funding would be required
to provide additional working capital for the continued expansion. Discussions
were held with the lender who gave their in principal agreement subject to an
updated business plan and forecasts. An updated business plan was prepared and
additional funding was provided.
Part-time Finance Director
Services to Provide Financial and Commercial Support
Essential Elements of Our Service
Offering Required:
Part-time
Finance Director
When a commercial catering equipment
services company had completed an MBO from a plc, they quickly found that they
lacked the financial and commercial expertise required in order to help with
the planned business growth. A very good finance team was in place, but the
high level requirements could not be met with the current structure.
By providing a part-time Finance
Director to work approximately one day a week, this enabled the Directors to
concentrate on running the business and allow all financial and commercial
matters to be dealt with by the part time FD. The FD took a small equity stake
to ensure the management team were harmonised as one and were totally focused
on growing the business.
This allowed the business to enjoy
rapid growth over the next 12 months following the appointment, which
ultimately resulted in the sale of the business to a plc thus providing an
excellent return for Shareholders in a very short time.
By bringing in expertise by way of a
part-time FD, this allowed the Directors to focus on the operational side of
the business, and when the sale process commenced it meant they were not
totally distracted from the running of the business that often happens when
going through a sale process.
A part-time FD can bring real value to
a business that cannot afford, or does not require a full time FD.
Lender
Negotiations
Essential
Elements of Our Service Offering Required:
Lender
Negotiations, Financial Modelling, Budgeting & Forecasting
When a
large commercial vehicle hire company suffered from the effects of the economic
downturn and sales decreased significantly, this had a severe impact on the
cashflow of the business.
With over
1,500 vehicles and many of them financed by way of hire purchase and leases,
the contractual payments could not be met based on the reduced sales and
cashflow that the company was facing.
A detailed
financial model was produced to show the cashflow position based on the reduced
sales, and from this position the amount of available cash for monthly payments
to the Finance Companies was determined. Finance Companies were approached and
advised of the situation, supported by the detailed profit and cashflow
forecasts.
Negotiations
were held with all Finance Companies who were providing total finance in the
region of £30m. The majority of lenders accepted the position, and were happy
to extend the terms of the agreements to allow full repayment but over a longer
period. The last thing any lender wanted was to repossess their vehicles and
have a forced sale situation in the current market that would have meant
crystallising significant losses. If a business is suffering financial
hardship, lenders will always be happy to discuss matters where a pro-active
approach is taken, simply not paying and not providing a solution as to the way
forwards will mean that lenders may have to take a much harder line ultimately.
________________________________________________________________
Sale of a
Company Owned by both Management & Institutional Investors
Following a BIMBO
some 10 years previously and having subsequently built up the business by way
of acquisition and organic growth to become a substantial operator in the
Logistics and supply chain sector with a turnover in excess of £40M, it was
decided that the time was right for shareholders to realise the profit of their
investments. The shareholders were made
up of Institutional investors and the senior management.
Finding a Purchaser & Presenting Our
Business
Following extensive
discussion all felt that best value
would be achieved by selling the company to a trade buyer rather than burden
the business with additional gearing with a secondary buyout and as CEO I had a considerable number of contacts through
networking within the sector and was able to identify a suitable potential
purchaser that had the “Will & Wallet” (both acquisitive & had the
funding) to see the transaction through to a successful conclusion, coupled
with the fact I knew of the interest of this company to provide supply chain
solutions to the Automotive Sector which was an area our business was
particularly strong in and would therefore add best value for the exiting
shareholders.
Having completed a number of acquisitions as
part of our own growth strategy we were well prepared to ensure the relevant
information was made available to the purchaser in a format that would help
smooth the process, this was important as we did not wish the transaction to
become public knowledge until it reached completion for fear of losing customer
confidence and staff loyalty, both of which of course were key to the value
being placed on the business, and therefore we wanted to ensure that the process
could be completed in the shortest possible time.
Again through
previous experience gained we were able to limit the number of professional
advisers that would otherwise have been essential, this did however put
additional pressure on us as the sale process itself was a huge distraction to
the day to day running of the company which I still had a particularly hands on
role in managing. (ibv would expect to handle
significant amounts of this additional workload on behalf of our clients).
Once the decision
to sell had been taken we put together a timetable and action plan which we
felt was realist and workable without having a negative impact on the company.
There were a few key items depicted below that we knew if addressed would add shareholder
value, and that we should attend to these prior to entering into serious
negotiations with the potential purchaser.
Whilst we were
comfortable with a “sweetheart” type deal having approached this specific
potential purchaser, we nonetheless decided to appoint a Corporate Finance
House to operate at arms length and research the sectors appetite for
acquisitions and benchmark valuations for businesses in this sector (ibv offer this service to their Clients),
this work was carried out and the conclusion drawn that at this stage of the
process there was no conclusive evidence to suggest we had not made the right
decision in targeting this purchaser and in fact there was a perceived risk of
destroying value should we involve several parties in an auction type process
as it would considerably extend the time frame and expose the business to the
afore mentioned potential risks.
Key Items to be Addressed Prior to Serious
Negotiations
- Secure the customer
base on long term contracts to provide an attractive contractual income stream
for the purchaser.
- Maximise the profit
by taking a shorter term view than would normally be satisfactory.
- Clean up the
Balance Sheet to the tax effective benefit of shareholders and to simplify as
far as possible the transaction for the purchaser to be one of mainly Goodwill.
- Review Key staff
incentive schemes to ensure they remained attractive and would assist in staff
retention for the purchaser post completion.
- Tidy up of Group
structure, dormant and non trading subsidiaries that existed mainly through
acquisition be cleaned up as required.
Having completed
these key items we were confident that shareholder value was being maximised
and that we had significantly reduced the potential for any chipping away at
the price during the Due Diligence process.
Agreeing the Price, Terms & Conditions
From the
information supplied the potential purchaser was able to make an indicative
offer, this was discussed in detail with management and subsequently revised
based on clarification of some of the precise customer contractual terms.
Once the mechanism
for calculating the price was disclosed, the research carried out by the
Corporate Finance House was revisited to ensure that we were not potentially
missing an opportunity; in fact it was bang in line with the research
valuations.
The next stage of
the negotiations was to agree commercial and personal terms; this can be a deal
breaker dependant on the view taken by the Vendor in relation to;
Tax effective payment structure
As with many
companies the exiting shareholders had different circumstances in relation to
how payments were best made to them to provide a tax efficient sale of their
shares. These differing priorities were reviewed and specific tax advice taken
by each shareholder, once the best option for each shareholder was established
an open and frank discussion and negotiation was held with the purchaser as to
how these individual objectives may be achieved
within the relevant tax frameworks and
where possible without having a negative impact on the Vendors or adding additional costs for the purchaser,
you must remember a structure that provides an equitable balance for both
Vendor and Purchaser is the best way to ensure the transaction remains on the
rails.
Continuation of employment with the
purchaser
In our case, of the
exiting shareholders it was only myself
who was offered a role in the purchasing business and as in most cases it was
crucial that I agree to stay on to keep the purchasers confident in the
transaction. This is where the “sweetheart” arrangement comes more into play,
as I was keen to move on and start again in another venture I did not want to
be locked in to a long term commitment and as I was likely to return to the
same sector neither did I want onerous restrictive covenants. By using the fact
that the purchaser was in effect having an exclusive opportunity I was able to
use this to negotiate a fixed term contract for 6 months from the date of
completion, in addition as I was being totally upfront regarding my future
aspirations the restrictive covenants were openly discussed and agreed to the
mutual satisfaction of both parties.
Deferred Payment
A deferred payment
was agreed; this covered a 3 month period post completion to provide comfort
that there were no negative surprises for the purchaser, at the end of the
agreed period the payment was made in full to all shareholders pro rata to
their shareholding. The amount of the deferred payment varies deal by deal and
is a negotiable number.
Earn Out
As I was going to
be working for the purchaser for the 6 month period post completion we needed
to agree a remuneration package including an Earn Out. The Earn Out is in
effect an additional payment for meeting specific targets during the transition
period, again the amount of an Earn Out varies deal by deal as does the
mechanism for its calculation, however I negotiated a set of performance
criteria that that provided real financial incentive for me and a genuine
benefit to the purchaser if the targets were met. The Earn Out was specific to
me and paid only to me in addition to the agreed price of the business.
Warranties
Warranties are an
inevitable part of any business sale process; they are in effect a personal
guarantee by certain shareholders that information provided to any purchaser is
accurate and in most cases there is a period of around 18 months post
completion for any discrepancy to come to light. If it transpires that there is
an issue the purchaser may claim compensation form those that have signed the
Warranties by way of claiming back elements of the monies paid by them for the
business, often without the need to resort to court action. The mechanism and
quantum varies deal by deal however be aware that in most cases external
shareholders such as venture capitalists will not sign Warranties as they have
not had the benefit of the in depth knowledge of the company and therefore the
opportunity to ratify the information given to the purchaser for themselves and
it is left for the management shareholders to negotiate these. One thing to
consider is that usually Warranties are pro rata to individuals shareholdings,
however if a company has a 10% external shareholder, and a claim is made for
£100.00 of the purchase price paid, the remaining 90% shareholding will be
required to reimburse the £100.00 not the £90.00 they originally received, this
is however usually capped by claims against any individual shareholder not
being in excess of monies received from the original sale.
Conclusion
With all the above negotiated
and agreed, we set a specific completion timetable and kept pressure on all
parties involved to ensure that it was adhered to. This was successfully achieved
and the deal completed to both the Vendors and Purchasers satisfaction. Three
months after the deal the Deferred Payment was made in full and six months
later the Earn Out was reconciled and duly paid. I then left the business to
move on to pastures new.
FORENSIC ACCOUNTING / SHAREHOLDER
DISPUTES
Essential Elements of Our Service Offering Required
to Complete a Transaction of This Nature:
Forensic Accounting, Shareholder Disputes, Legal
Documentation
IBV were
approached by Director / Shareholders in a company to understand what their
rights were, as they believed that the other Director / Shareholders were
running the company in such a way that was prejudicial against the minority
shareholders. As is often the case they did not know what rights they had, and
believed that as minority shareholders their rights were very limited. In fact
they held a substantial minority, and they had a number of courses of action
open to them.
The business
concerned had been set up a number of years previously with a number of
Director / Shareholders, and also a number of external investor shareholders.
No formal agreements were put in place at that time in relation to Shareholder
Agreements or Director’s service contracts, therefore the company was governed
by its standard Articles of Association. The first thing to note in this case
is you should always ensure full legal documentation is put in place when
entering into a business relationship.
The business
had grown considerably over the years and had got to the stage where it was
making substantial profits. IBV had been approached because it was believed
that the other Directors were taking excessive sums from the company without the
knowledge of others.
- An initial free no obligation meeting was held
to discuss all aspects of the issues that the Director / Shareholders had, and
to understand what they were alleging against the other Directors.
- After the initial meeting, IBV in association
with legal advisors introduced by them summarised their rights and possible
courses of action open to them. The absolute key issue was that to successfully
pursue a case, evidence was required of the alleged wrong doing that could be
used in Court.
- IBV provided expert advice and guided a process
that covered many weeks in extracting financial information in order to prepare
a report for legal review. The key advice provided at this stage was that as
hard as it was, the Director / Shareholders had to get on with business as
normal, and not alert others of the investigations that were being undertaken.
- IBV produced a detailed report summarising
matters that detailed evidence of financial wrong doing by other Directors, and
a number of other matters that were detrimental to the minority shareholders.
This report was then reviewed by legal advisors who stated that a very strong
case existed based on the evidence in the report.
- A meeting was held with Legal Counsel, and the
advice was that based on the strength of the evidence and the level of
financial wrongdoing, a without notice injunction could be applied for in the
Courts to immediately limit what was being drawn out of the company by the
other Directors. The without notice injunction was applied for and successfully
obtained.
- A petition was issued by our clients pursuant to Section
994 of the Companies Act 2006, which asks a Court to rule in relation to
unfair prejudicial action by certain Director / Shareholders against minority
shareholders. The Court has wide ranging powers under such an action.
- At this stage, there was the small issue of
continuing to run the business, and this in itself proved very challenging for
all parties who were in the middle of a major dispute. IBV were able to provide
support at all times on a 24/7 basis, as for individuals involved in such
disputes it can be a very stressful and unpleasant experience.
- The legal process continued over the subsequent
weeks, with IBV being involved in all legal matters, working very closely with
the lawyers. IBV have extensive legal knowledge and are therefore able to
provide excellent support in such cases.
- It became clear after the defence was filed by
the other Directors, that the legal case of the IBV clients was very strong,
and the legal advice was that they would almost certainly be successful at
trial. For a case to reach trial in such situations, there would normally be a
delay of between 12-18 months, thus this causes many practical problems of
Director / Shareholders continuing to work together.
- As is often the case in these situations,
negotiations commenced between parties to reach an agreement to end the
dispute. Negotiations took place over a number of weeks, and due to the
strength of our client’s legal case we were able to negotiate a very successful
outcome in relation to the sale of their shares.
- IBV were involved throughout the case on a daily
basis, from the preparation of the forensic accounting report to obtain an
initial legal opinion, right through the court actions, and ultimately the
legal documents to conclude the sale of our client’s shares.
- By having been involved personally in running
businesses and dealing with all kinds of legal disputes over 25 years, and
having the accounting knowledge as well, the IBV offering in such cases means
that clients receive unrivaled support to obtain justice for themselves.
- If you think you are being treated unfairly in a
business situation, always do something about it, your rights may be stronger
than you think. A free initial meeting with IBV will allow you to discuss
matters and obtain an independent opinion.
Client
comment in relation to the above case:-
“I was
recommended to IBV by a friend, and I have to say it was the best
recommendation I have ever received. I was unaware of my rights, and knew that
the company was not being run properly, and feared I could lose everything
after dedicating many years to building up the company. At the first meeting I
was advised as what my rights were, but very importantly it was made clear to
me that without evidence there was no case. With the support of IBV we were
able to prepare a forensic accounting report for legal consideration, that
enabled us to obtain an injunction and put us in a very strong position. IBV
then provided 24/7 support over the next few months as matters progressed. Ultimately
IBV assisted in negotiating the agreement for the sale of our shares, so
provided support and advice in the case from start to finish.
The work
undertaken by IBV to achieve the result we did was absolutely critical in
achieving an outcome that far exceeded expectations. They took a proactive role
in the whole process, and ensured that they worked with the lawyers in a
seamless way in putting our case together. I can only say they were brilliant
in every aspect of the case, and their overall personal support was
exceptional”
Contact Us now if you wish to learn more about how we can be of help to your business.