From an article by peter Whalley in "The Insolvency Practioner" 08 2005

SIP 2 Requires liquidators to conduct an investigation to determine the property and liabilities of the company and identify any actions that could lead to recoveries for creditors. Likewise, as administrators or receivers we sometimes identify causes of action which could be pursued for the benefit of creditors. In the past, scope to make recoveries was tempered by available funds to meet the costs associated with legal proceedings.

In recent years there have, of course, been wide ranging changes - conditional fee agreements with legal advisers and adverse costs insurance can make it viable to bring a claim in circumstances where it would not previously have proved possible. In instances, however, where lawyers will not undertake CFAs, the claim is complex or the assets are too limited to fund the insurance, you may still be inhibited from bringing a claim. That is where litigation funding comes into its own with the emergence of funders willing to provide finance in return for some benefit from the proceeds of the action.

On the face of it, this is an exciting development; and my own experience of working with Insolvency Management Limited has been that they have been invaluable when it comes to pursuing such matters. I cannot praise them highly enough for the support and assistance that they have given me - not only covering the very substantial costs of litigation but also assisting with the selection of barristers; procurement of adverse costs insurance on competitive terms; researching solutions to enforcement in overseas jurisdictions; and working with the practitioner when, at times, matters did not appear to be proceeding entirely according to plan!
That said, as with most things in life, litigation funding is not a panacea for making recoveries in each and every case that crosses your desk. Firstly, funders generally have a shopping list of requirements to be met before they will consider taking a case.

If these criteria can be met then you have a reasonable chance of securing funding. Even then, however, this is not an end to the issues to deal with.

In certain types of claims the Court may require expert witness evidence. Where this arises, it is not a problem to look to the funder to meet the costs involved as part of the package. Nevertheless, care needs to be taken to ensure that these costs are agreed with the funders in advance, are monitored and the necessity for any overruns identified and agreed with the funders before they are incurred. This may sound like common sense but once the trial has commenced and all parties are immersed in the heat of battle, this issue can be overlooked with unfortunate consequences.

A similar issue to keep under review is the level of adverse costs insurance. It is not unprecedented for the costs in proceedings to exceed early estimates quite significantly. The last thing you want, as liquidator, is to find that an action that you thought might result in realisations for creditors gives rise to a personal liability for costs, not covered by the insurance obtained, should you lose. To find that the whole strategy for pursuing the claim is being driven by possible cost consequences is not a situation you really want to find yourself in.

Then there are a few practical issues to think about. Experienced funders will be able to guide you through most of these difficulties but, at the outset of embarking on these arrangements, liquidators in compulsory liquidations in particular need to consider how to process advances for legal costs.

The funders and lawyers would not thank you for incurring ad valorem fees on the funds passing through your hands on their way to the legal team. Likewise, funders may not be registered for VAT; and even if they are, the taxable supply is to the liquidation estate. So the question of how the input tax on the legal advisers' fees can be recovered and reimbursed to the funder can become important.

The final point to keep in mind is the impact of the sharing arrangement that you enter into with the funder with respect to the proceeds. At the time that you are looking for support for a claim that you might not otherwise be able to mount, almost any share of the proceeds looks better than none and funders will generally expect to negotiate something in the region of 25-50%.
As the case progresses and, hopefully, prospects for success start to encourage some negotiation with the defendants, there can be a temptation for you (or worse still the creditors committee) to feel that you have been overly generous in the proportion attributable to the funder. Care should be taken, therefore, to ensure that you have negotiated the best division that is available from a reputable funder and that, more importantly, you have adequate evidence of the creditors committee's support for, and commitment to, those terms.

If, however, you have a case that meets a funders criteria - which when you think about it ought to align with your own (and the creditors committee's) assessment of the merits of any case that you might contemplate - these practical issues are far from insurmountable. Funding arrangements in these circumstances can be a powerful tool to pursue recoveries that might not otherwise be available to you.

Almost 100 delegates attended the Southern region annual conference in Bournemouth held Thursday 30 June–Friday 1 July.

This was sponsored by Blake Lapthorn Linnell, Bond Pearce, Hilco Appraisal, Lester Aldridge, Pitmans and Trinnick Warr.

David Archer of Pitmans chaired an insolvency ‘Room 101’ in which four of the region’s professionals, Malcolm Niekirk,Antony Fanshawe, Suzanne Brooker and Peter Whalley, offered up aspects of insolvency life for consignment to the dustbin of history – illustrated in each case with
an appropriate prop.

David decided that only one item would be allowed into Room 101 and the selection would be by a vote from the floor. The winning nomination was Leyland Daf.

Roger Townsend and Mark Proudley, of Hilco Appraisal, outlined trends in the market for chattel assets with the discouraging news that the realisable values for assets on removal in insolvencies had deteriorated dramatically.
This was in part due to the decreasing cost of new, often imported, products, the reduced demand for second hand equipment in developing countries and what they described as the ‘E-Bay factor’. Mark’s exposition of the latter was given in song to the tune of ‘Yesterday’.

The after-dinner speaker was Stephen Bassett, the chief operating officer of Broadstone Bank.
In summary, his message, conveyed in an amusing and entertaining style,was to remind practitioners that leased assets belonged to the leasing companies and, whilst administration in particular restricts their rights to repossess, they were still entitled to be appraised of the
whereabouts of their assets and to receive the income stream associated with their continued use. In short, insolvency practitioners should afford leasing companies some common courtesy in the conduct of their work in the manner set out in the R3/FDA protocol.

The Friday sessions began with a presentation by Joanne Rumley, of Bond Pearce, supported by Antony Fanshawe, of Fanshawe Lofts.

This concerned the administration of Bowman Power Limited, a company developing highly efficient, low-emission gas turbine generators.There were unusual facets of the case including a £1 million cash balance, but a burn rate of about £400,000 per month. Despite difficulties, this was a case in which unsecured creditors can now expect to recoup most of their money.

Chris Brockman, of Blake Lapthorn Linnell, presented a case study on personal insolvency which dealt with a range of issues involving: a director of a company with personal liabilities arising from guarantees of company liabilities; the status of charges of the matrimonial home; and the impact of separation from his wife and of her permitting her dependent mother taking up residence in an annexe to the property. Chris assisted those present to assess the status of the claims and the impact of these factors on the funds that might be available for creditors.

Mark Berrisford-Smith, of HSBC, gave an enlightening and informed assessment of the UK and global economic outlook. Mark was very positive about the UK economy pointing to the steady pattern of growth since the UK left the ERM in 1992; the reliable pattern of inflation within the government’s target of 2– 2.5 per cent; and, consequently, single-digit
interest rates throughout. On the global stage, the position was less rosy.However, the causes for concern were less likely to arise now but in
the medium term.

Dick Ivory and Jenny Gilbert, from the Voluntary Arrangement Service (VAS) of HM Revenue & Customs, outlined what was happening within their department.The VAS’s key driver continues to be commerciality in order to obtain the best return, not just one that is better than bankruptcy.
Nevertheless, Dick had some salutary points for practitioners to bear in mind. For instance, full disclosure is essential, therefore the VAS will want to see copies of property valuations. Likewise, it is essential to disclose the income and expenditure of the debtor, as without this the arrangement will not be approved.

The VAS will also look at the debtor’s compliance history.Why are tax returns not reasonably up to date? Can they be brought up to date whilst the proposal is being drawn up?
Sometimes when the VAS rejects a proposal, it possibly knows more about the debtor than the nominee does. Surprisingly, ten per cent of proposals are still not being sent to Worthing.
Surely there cannot be a practitioner in the country who does not know that the VAS exists!

Malcolm Niekirk, of Lester Aldridge, led a case study looking at the practical and ethical issues surrounding the possible exit from a failing company voluntary arrangement, using alternatives to compulsory liquidation.There was intense discussion on whether it was acceptable for the supervisor to accept an appointment by the directors or a qualifying floating charge-holder, as either administrator or liquidator.

www.r3.org.uk/recovery

Root Capital Limited the operational private equity provider in the technology and support services sectors, has conducted a secondary buyout of IGG Component Technology Limited - the space and aerospace procurement contractor, based in Fareham, Hampshire.

IGG Component Technology Limited had previously been the subject of a management buyout supported by 3i and HSBC Bank plc in 1999.

The business, which was originally founded in 1978, has a long track record in parts procurement and testing and management and engineering consultancy in the space sector.

The Company has extensive test facilities at its Fareham base but services clients world-wide. Its clients include the European Space Agency, EADS Astrium, Alcatel, Bae Systems, JAE, MBDA, Rolls Royce and Smiths Industries.

Simon Philips of Root Capital commented "we are delighted to have been invited to participate in the future of IGG Component Technology Limited.
We believe that the prospects for the space sector look good and there are excellent opportunities to increase the Company's penetration of the civil and de-fence aerospace industries".

Richard Matthews, the managing director of IGG Component Technology Limited, remarked "we have enjoyed our association with 3i who have been very supportive to us throughout the period since our original buyout and we are grateful to them.

Root Capital seem keen to assist us at a time when the demand for component procurement in the space sector seems set to rise sharply with the commencement of the Gallileo European Global Positioning satellite programme and various projects in South East Asia and elsewhere.
In addition, after quite a long gestation period we seem set to secure significant contracts in the defence sector."

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Peter Whalley, a director of Buchanans Corporate Capital Limited, who advised the Company on the transaction observed "I am pleased that we have been able to introduce the management of IGG and Root Capital Limited. We hope this proves to a prosperous association for all involved".

Southampton based Seastream International Limited filed for administration today following a traumatic series of developments over recent months.

The Company, based at Southampton's Shamrock Quay, is at an advanced stage in the construction of the first Seastream 650 luxury sailing yacht originally envisaged as the first of the top of a range of models to be marketed by the Company.

The company was owned and funded to the tune of £3.8m by the wealthy entrepreneur Christopher Matthews. Mr Matthews, 54, died at the beginning of August when the aircraft he was piloting crashed in Wisconsin. As well as Seastream, Mr Matthews' business interests included a helicopter company, Cav-Air, based in Fort Lauderdale, Florida, several dating agencies, a hedge fund portfolio and property interests.

Although his executors have been anxious to continue financing the completion and sale of the first Seastream 650, they cannot do this until they obtain the sanction of the Court.
In the meantime the Company has come under significant cash flow difficulties that led to the director's decision to appoint administrators.

Peter Whalley of Buchanans, who have been appointed, said "this is clearly a tragic tale of something going wrong which the company's management could never have foreseen".

"Our first task will be to stabilise the situation and assess the options for maximising value for the creditors and the executors who are handling Mr Matthews' estate. Prior to our appointment, the Company had already commenced steps to find either a buyers for both the yacht, which is presently undergoing final finishing in Falmouth, and the business assets and undertaking. We shall continue this effort."

In addition to the Seastream 650, there are a range of moulds and tooling for the construction of the 650 and two others yachts in the range. http://www.seastream.com