Louis Group (IOM) Limited (in liquidation) liquidation)

Louis Group (IOM) Limited (in liquidation)
Louis Group Structured Capital Limited (in
liquidation)
Louis Group Structured Fund plc (in
liquidation)
Louis Group International (Europe)
Limited (in liquidation)
Louis Group (SLN) Limited (in liquidation)
LG SP Investments Limited (in liquidation)
Report by Michael Simpson and
Gordon Wilson
Joint Liquidators
13 June 2013
Contents
INTRODUCTION
3
EXECUTIVE SUMMARY
4
FUNDS FLOW
5
LGSPI UPDATE
6
PROPERTY STRUCTURES
7
FINANCIAL POSITION OF THE SIX COMPANIES
8
CREDITORS OF THE SIX COMPANIES
9
OTHER MATTERS
BL Holdings Limited
10
10
PLANS AND STRATEGY –NEXT SIX MONTHS
11
SUMMARY
12
Appendix 1 – February 2013 property structure update
Appendix 2 – May 2013 property structure update
Appendix 3 – LGIOM report June 2013
Appendix 4 – LGSC report June 2013
Appendix 5 – LGSF report June 2013
Appendix 6 – LGIE report June 2013
Appendix 7 – SLN report June 2013
Appendix 8 – LGSPI report June 2013
Appendix 9 – Liquidators and liquidators legal costs of the Six
Companies to 25 May 2013
1.
INTRODUCTION
This is our first report since our appointment as Joint Liquidators and Joint Deemed Official Receivers of the
following companies by the Isle of Man Court (“Court”) on 21 January 2013:
Louis Group (IOM) Limited (in liquidation) – “LGIOM”
Louis Group Structured Capital Limited (in liquidation) – “LGSC”
Louis Group Structured Fund plc (in liquidation) – “LGSF”
Louis Group International (Europe) Limited (in liquidation) – “LGIE”
Louis Group (SLN) Limited (in liquidation) – “SLN”
LG SP Investments Limited (in liquidation) – “LGSPI”
Collectively herein “the Six Companies”.
Our appointments came as a result of applications by the Financial Supervision Commission (“FSC”) and were ratified
at creditors and contributories meetings on 18 February 2013. Any reader of this report who has not yet read the
decision of the Deemster in making the winding up orders in relation to the Six Companies, we recommend that you
do so to understand the circumstances leading up to our various appointments. It is available via this web link.
http://www.judgments.im/content/J1327.htm
This report is intended for all members and creditors of the Six Companies, as well as for the Court and the FSC.
Copies of it will be made available on our website.
We had some familiarity with five of the Six Companies having previously been appointed as follows:
LGIOM
LGSC
LGSF
LGIE
LGSPI
Liquidator
Provisionally
12 December 2012
4 October 2012
Manager
Controller
Inspector
4 October 2012
1 May 2012
4 October 2012
4 October 2012
4 October 2012
Upon our appointment as joint liquidators and joint deemed official receivers, all of our previous appointments were
terminated.
3
2.
EXECUTIVE SUMMARY

Our initial financial assessment has concluded that absent any recovery from claims against various third
parties, creditors and investors of the Six Companies are unlikely to receive anything other than a very low
recovery.

There has been no material change to our previous assessment of the flow of funds and we have found no
evidence which requires us to change our previously reported findings.

We have found email evidence, often in the form of specific instruction from Alan Louis, supporting payments
from LGSPI to Alan Louis and to other Louis Group companies into the millions of pounds.

Under legal advice, we are unable to share copies of these emails at this time.

Alan Louis continues to deny owing the Six Companies any money.

We have concluded our assessments of the property structures and determined that subject to a potential
recovery by LGSC of £1.2m, there are unlikely to be any material recoveries for the Six Companies arising out
of their interest in those entities.

The situation for property syndicate investors is mixed but overall, the majority of syndicates have incurred
substantial losses.

We continue to process creditor claims and any creditor who has not yet submitted a claim is encouraged to do
so as soon as possible as we have not yet ruled out the possibility of recovery of contingent assets.

Going forward the focus of our work will be the consideration of potential claims, negotiation with third
parties against whom some or all the Six Companies may have claims and the necessary investigative work to
support those claims.

Our next report will be issued towards the end of 2013.
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3.
FUNDS FLOW
The diagram below, taken from our report as Inspectors into the affairs of LGSF, and presented to investors and
creditors at our meeting in February, shows the net flows of funds between the Six Companies based on our financial
analysis. To date we have found no reason to alter these findings to any material extent.
SLN
Raised c£10m (net)
and invested into
LGSF through a
Nominee.
NOMINEE
Invested c£10m
(net) in shares in
LGSF.
Non LG Investors
Invested c£12.2m
(net) into shares in
LGSF.
LG Investors
Invested c£3.7m
(net) into shares in
LGSF.
LGSF
Total invested (net)
c£25.9m.
Transferred c£25m
(net) to LGSC
LGSC
Received c£25m
from LGSF (net) and
paid that to LGSPI.
LGSPI
Received c£25m
from LGSC (net).
Paid c£25m (net) to
various entities and
people.
LGSPI
c£2m (net)
investment into
LGSF.
Subscriptions
c£12.4m
Redemptions
c£8.7m
Transfers to SLN
c£1.9m
Denotes a flow of funds (on a net basis)
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4.
LGSPI UPDATE
In our second report as inspectors which we prepared in July 2012 and which was published by Court order in October
2012, we provided an analysis of the transactions through the LGSPI account in the Isle of Man in so far as we had
been able to analyse them at that time based on the narrative on the bank statements that we had obtained.
In that report, we highlighted that we had not carried out an exhaustive analysis, however, we expressed our view,
notwithstanding this limitation, that our analysis was sufficient basis for the conclusions that we reached which were:
a) there were various payments to and from persons connected to the Louis organisation
b) there was a circular pattern of money flow, involving LGSPI investing money into LGSF, which in turn
transferred the money to LGSC, which in turn transferred money back to LGSPI from where it was seemingly
used for a variety of purposes. This pattern was apparently reversed as shares were redeemed by LGSPI and
money flowed back the same way that it arrived
c) transactions had been carried out through the LGSPI bank accounts pertaining to over 60 different entities
involving substantial co-mingling of funds
d) an extraordinary loan from LGSF to LGSPI discussed at length by the directors of LGSF was seemingly used
to repay principal and interest to another entity called Montpellier and to finance a payment to LGIOM
e) there were numerous transactions with a reference “PICS” seemingly involving individuals whereby money
was received by and paid by LGSPI and again funds were seemingly co-mingled
f) the transactions were often recorded as representing loan capital, loan repayment, interest paid and interest
received.
Although we are at a very early stage in our work, we appreciate that there is considerable interest in our findings and
have updated our analysis from last year to take account of the greater amount of background information that we now
have.
Significantly, we have not found it necessary to alter our earlier findings, rather, we have found more information
which supports them.
We have found evidence in the form of emails and handwritten notes which indicates to us that Alan Louis, assisted at
varying times by certain senior officers of the Louis Group, has exercised effective control over the LGSPI bank
account throughout.
Those emails apparently confirm that monies from the LGSPI bank account have been used for his personal expenses
and other apparent personal purposes. Alan Louis claims that these monies, some of which appear to have been
accounted for as loans to him by LGSPI, have been repaid.
We have also found emails from Alan Louis in which payments from LGSPI to other Louis Group companies for
purposes seemingly unconnected with property transactions are instructed. These payments include amounts paid to
certain individuals whom we believe worked for the Louis Group, payments to companies associated with the now
defunct Banque Louis and payments to other Louis Group companies which are now in financial difficulties and
unable to repay LGSPI.
Under legal advice, we are unable to share these emails with interested parties at this time.
It is apparent that LGSPI has been used for purposes that are materially inconsistent with the purposes stated in the
offering document of LGSF, the company which (through LGSC) was the source of the vast majority of the money that
was deposited into the LGSPI account.
Because of the scale of transactions through LGSPI, and in particular because of the lack of supporting documentation
such as loan agreements for payments made as well as the poor state of its financial records, our investigations into
whether or not Alan Louis has in fact repaid the money are likely to take some time.
Mr Louis denies there are any monies due from him to LGSPI. We are keen to understand how Mr Louis believes this
to be the case, but our request for further information has so far been met only with a denial of liability and a promise
of further information. As yet his undertaking is unfulfilled.
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5.
PROPERTY STRUCTURES
Each of the Six Companies has a financial interest in one or more of the property holding structures which were
administered by LGIOM. These financial interests are either as a debtor through the provision of services in the case of
LGIOM, or as investor or as loan provider.
Immediately following our appointment as liquidators, we gave a presentation which outlined the issues faced by these
property structures including poor accounting records, lack of up to date valuations and uncertainty over the positions
of the banks which had loaned the companies money under fixed charges. Our original presentation is enclosed as
Appendix 1.
Since then we have spent significant time seeking to understand the affairs of each of these companies in order to
evaluate their financial position and in particular to assess whether they have any real prospect of ever paying monies
back to their investors and unsecured creditors.
We have prepared an updated presentation which reflects our current level of understanding as a result of our work to
date. This has been sent separately to interested parties and is attached as Appendix 2.
In summary, it has become apparent during our work that current valuations have, in the majority of cases, fallen
substantially from previous valuations. The agents that we have used have attributed this to a number of factors
including ongoing regional economic problems, depressed demand and ever shortening lease durations. In light of
these valuations, and in light of expiring senior debt facilities, banks are demanding a sales programme to repay their
loans and in some cases are appointing receivers over the properties concerned.
It is disappointing that we must now advise that only in a few cases do we believe that it is likely that any monies will
be returned to unsecured creditors, and that in almost all cases, the property companies have to be put into
liquidation.
LGIOM will continue to assist in the liquidation process of these companies to the extent that creditors vote for that
and provided it will be paid for its services.
All affected by this will be informed by separate letter in the near future.
7
6.
FINANCIAL POSITION OF THE SIX COMPANIES
We have prepared a series of appendices which set out our current best estimate of the financial position of the Six
Companies as follows:
Company
LGIOM
LGSC
LGSF
LGIE
SLN
LGSPI
Appendix Reference
3
4
5
6
7
8
These appendices provide an updated position to that which we previously reported at the First Meetings of Creditors
and Contributories in February and reflect our current view of the estimated outcome for creditors (absent any
recovery of contingent assets) following the work that we have carried out since February.
In summary, we believe that LGSC has remaining economic interests in only two property structures which will bring
in any material realisation. Our current best estimate is that these two interests will realise around £1.2m to £1.4m.
In the case of each of the other estates with property structure exposures, being LGSPI, LGIE and LGIOM for the
purposes of this report we consider it prudent to value their interests at Nil due to a number of reasons, but mainly the
financial positions of the structures themselves and lack of reliable accounting records.
Other than the sale of these identified assets by LGSC, any further returns to creditors and investors in the Six
Companies will require successful claims to be brought against third parties who may owe the Six Companies money
and/or who may have failed in their professional, fiduciary or contractual duties.
The pursuit of legal claims in a liquidation can be complex and drawn out process. Whilst we fully appreciate the
desire of creditors and shareholders to see legal action taken against varied parties, we can only do so if we believe that
there is a strong likelihood that our claims will be successful and that there is the possibility of recoverable assets.
Our assessments about claims have begun and necessary advice is being sought.
We cannot provide further information at this time as we do not wish to prejudice these claims in any way.
A table of the costs incurred to 25 May 2013 of Michael Simpson and Gordon Wilson acting as joint liquidators and
Dougherty Quinn as liquidators legal advisors of the Six Companies is shown in Appendix 9.
8
7.
CREDITORS OF THE SIX COMPANIES
In addition to dealing with a significant volume of individual investor and creditor queries, we have been processing
proof of debt forms submitted to each of the Six Companies.
The following is a summary of the claims received to date:
Number received
Value of claims submitted
LGIOM
80
£19,830,125
LGSC
11
£29,327,575
LGSF
30
£8,162,364
LGIE
15
£40,149,179
SLN
92
£11,435,277
105
£79,750,985
LGSPI
The process of verifying proofs is ongoing. This process is complicated because of the poor state of the financial
records in some of the companies. We also acknowledge that in some cases the same creditor may have claims against
more than one company for the same amount and we have yet to decide how to deal with any possible double
counting.
In addition, from our review of records we are aware of cases where investors/creditors have had amounts repaid
(mostly interest but also capital in some cases) by other Louis Group entities and further investigation is required to
help us identify who has received what. Our intention is to hold over these claims whilst this work is performed, whilst
continuing our validation work on other claim types.
We ask that all creditors who have not yet submitted an original proof of debt form do so as soon as possible. Forms
for each of the Six Companies are available on our website at:
http://www.pwc.com/im/en/services/advisory/insolvency-cases.jhtml.
Original proofs must be submitted as we cannot accept proofs electronically.
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8.
OTHER MATTERS
BL Holdings Limited
BL Holdings Limited (“BLH”) is a client of LGIOM in respect of registered agent services. LGIOM remains bound by
duties of confidentiality with regard to BLH affairs and it is therefore not possible for us to be as open with interested
parties about BLH as we might otherwise wish to.
However, we have caused LGIOM as registered agent to write to BLH investors providing financial accounts and other
information regarding to its affairs and a number of those investors contacted us expressing significant concern.
BLH is an Isle of Man company established to invest in Banque Louis SA in Switzerland.
There are a considerable number of sizeable transactions between BLH and LGSPI involving flows of funds.
We believe that BLH is currently under the control of Mr Louis at this time, as he is the sole director per our records.
Unfortunately due to non-compliance with our requests for information on its affairs, LGIOM has, at our direction,
issued notice to BLH that unless such information is provided shortly LGIOM will be terminating services as
registered agent with effect from early August 2013.
We wish to highlight that decision to those BLH investors who have contacted us as it has possible implications for
BLH in the event that another registered agent is not found.
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9.
PLANS AND STRATEGY – NEXT SIX MONTHS
Our focus in the next six months will be on the following:

Commencing the liquidation process of the various property companies that are now considered to be
insolvent and/or unable to pay debts and/or at the end of their business lives. All parties affected by those
liquidations will be given separate notifications and information as necessary.

Continuing to assess and deal with investor/creditor claims and enquiries for the Six Companies and
expanding this work to include the property syndicate companies which are to be liquidated.

Considering and commencing negotiations with the various third parties that we have identified so far against
whom some or all of the Six Companies may have claims.

Continuing with any necessary investigations to support such claims
It is our current intention to issue our next report in about six months’ time. However, in the event that there are
matters of significance to report in the intervening period, then we may issue ad hoc updates where appropriate.
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10.
SUMMARY
We know, based on the hundreds of conversations and communications that we have had with investors, that many
are in a state of disbelief, shock and anger at what has happened with respect to the substantial losses incurred and
that they collectively want something done about it.
Investors should be assured that we are working as swiftly as possible to gather all the information and conduct as full
an investigation into the affairs and activities of the Six Companies as is possible with the resources at our disposal so
that we may take appropriate action to recover assets.
Our assessment of the conduct of those associated with the Six Companies, to the extent that they are not part of our
asset recovery process, will be assessed and reported on at a later date.
It is of huge significance to us, and the team that we employ, that we receive full support from all who are affected. We
are fully committed to achieving the best outcome possible and to ensuring that those that are accountable are dealt
with in the appropriate manner.
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Appendix 1 – February 2013 property structure update
Appendix 2 – May 2013 property structure update
Appendix 3 – LGIOM report June 2013
Appendix 4 – LGSC report June 2013
Appendix 5 – LGSF report June 2013
Appendix 6 – LGIE report June 2013
Appendix 7 – LGSLN report June 2013
Appendix 8 – LGSPI report June 2013
Appendix 9 – Liquidators and liquidators legal costs of the Six Companies to 25 May 2013