City firm Ince & Co was at serious risk of intervention after partners opted not to raise the £8.5m needed to prop up the ailing business, it has been revealed today. A notice of administrator’s proposals outlines the scale of the problems faced by the international firm before it was bought in a pre-pack arrangement by listed firm Gordon Dadds on 31 December.
The report, prepared by joint administrators from insolvency firm Quantuma, states the firm’s three subsidiaries owe around £34m to unsecured creditors. Of those, creditors of the London LLP, owed around £19.8m, can expect to recoup 21.8p in the pound. Creditors of the international LLP, owed £7.2m, will get back less than 1p in the pound. The Ince & Co Services subsidiary owes unsecured creditors £7.1m, are expected to receive 3.5p per pound.
The administrators state that the firm faced ‘significant’ partner departures – around 40% of the partnership from the London LLP -- in the year prior to administration.
As well as a loss in turnover, there was a requirement to repay £4m capital to former partners, which translated into immediate financial problems for the business.
Trading figures indicate global turnover was down £5m year-on-year in the first five months of 2018/19, with the London LLP’s earnings down 26% over this period.
Of the firm’s lock-up, more than half was owed for longer than 60 days.
The board was advised in September 2018 that without a sale of the firm they would need to agree to a lock-in for three years, plus find additional funding of £8.5m to pay for scheduled capital repayments, debt servicing and growth.
Minutes from the relevant partners’ meetings confirm there was ‘no appetite’ to inject additional capital by increasing their partner capital loans.
The administrators said it was clear from their investigations that the firm was experiencing major cash-flow issues by the end of December 2018 which would have become ‘unmanageable’ by January and would have led to an uncontrolled break-up and heightened risk of SRA intervention.
Talks began with Gordon Dadds in September 2018 and the potential purchaser met with Quantuma in December. The report states that ongoing financial due diligence into the Ince entities highlighted ‘a number of issues which raised serious concerns’ about their solvency.
These included unreconciled balances of £2.1m and a number of ‘material miscalculations’ of transfer pricing charges to foreign entities. It was apparent, the report states, that the London LLP would be unable to pay its debts as and when they were due. The firm was financed by £12.5m in members’ capital and facilities from RBS coming to £10m.
The report, published this week with Companies House, states that avoiding intervention prevented some 200 redundancies and subsequent employee claims adding up to £5m. The offer from Gordon Dadds was deemed to provide a better result to creditors when compared to a break-up and SRA intervention.
Gordon Dadds has agreed to pay 40% of the WIP value and 75% of the value of uncollected unbilled paid disbursements. It has paid £400,000 for fixtures, fittings and IT hardware, and £700,000 for inter-company activities.
Administrators estimate their fees will be £800,000 in total, with solicitors’ fees coming to more than £400,000.
Ince was established in 1870 and specialised in transport, trade, energy and infrastructure, and insurance. It had a network of affiliated firms across Europe and East Asia.