Louis Group International (Europe) Limited (in liquidation) Report by Michael Simpson and

Louis Group
International (Europe)
Limited (in liquidation)
Report by Michael Simpson and
Gordon Wilson
Joint Liquidators
13 June 2013
Louis Group International (Europe) Limited (in liquidation)
Contents
Page
Financial summary
Update to financial analysis
3
4-6
Note 1 – Investment Revaluation SA
4
Note 2 –Loans to and from Aldi 1 Companies
4
Note 3 – LGUK and Furphy and Davidson
Loans
5
Note 4 – Loan to Alan Louis
5
Note 5 – Loan to Nils Hinrichsen
5
Note 6 – Other assets
6
Note 7 – Loan from LGSPI
6
Note 8 – Deed of guarantee with LGSC
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Louis Group International (Europe) Limited (in liquidation)
Financial summary
Using the latest Trial Balance of LGSPI that we found on our appointment as joint liquidators
provisionally in October 2012, we made an assessment of LGIE’s assets and liabilities to assist the
Court in its deliberations on the winding up petition. We share that assessment below and where
necessary due to subsequent developments since our appointment, we have added further comments.
Assets
Per Trial balance
£m
£5.8
Our assessment
£m
Doubtful
Further
comment
Note 1
Loans to Aldi 1 companies
£6.4
Unknown
Note 2
LGUK shareholding
£2.5
Doubtful
Note 3
Loan to Alan Louis
£5.6
Unknown
Note 4
Loan to Nils Hinrichsen
£0.6
Nil
Note 5
Loan to LGIOM
£0.5
Nil
Other assets
£1.5
Doubtful
£22.9
Nil
Loans from LGSPI
£6.2
£6.2
Loans from Aldi 1 companies
£6.2
Unknown
Loans from Messrs Davidson
& Furphy
£2.0
£2.0
Loans from Louis Group
Enterprises
£0.3
Unknown
Accruals
£0.5
Nil
£15.2
£8.2
£7.7
(£8.2)
-
(£25.1)
Investment Revaluation SA
TOTAL ASSETS
Note 6
Liabilities
TOTAL LIABILITIES
NET ASSETS/(LIABILITIES)
Note 7
Note 3
Other Commitments
Deed of guarantee in favour of
LGSC for LGSPI debt
Note 8
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Louis Group International (Europe) Limited (in liquidation)
Updates to Financial analysis
Note 1 – Investment Revaluation SA
Based on information in LGIE’s accounting records, we believe that this asset is LGIE’s shareholding in LGSA
and that it amounts to 40% of that company’s issued share capital.
We have also found a document of pledge whereby LGIE has apparently pledged its interest in its CGSA shares
to LGSC as security for the amounts owing to LGSC by LGSPI.
In our capacity as liquidators of LGSPI, we are aware that LGSPI is in default on its loan with LGSC. As a result
of this default, LGSC has called the pledge on these LGSA shares owned by LGIE and we consider it appropriate
to conclude at this time that LGIE has no remaining economic interest in them. As a result, their value to LGIE
is most likely nil, and we have assessed recovery as doubtful.
Since our appointment as liquidators in January, we have made a number of enquiries of LGSA management
through our colleagues at PwC in South Africa and we have sought legal advice on our options in relation to this
asset.
We are also aware that pursuant to an application by Investec in February 2013, LGSA is in a court supervised
business rescue process under the control of a business rescue practitioner.
Presently we await the outcome of the business rescue process and the first substantive report from the
business rescue practitioner before we take any further decisions about this asset.
Note 2 – Loans to and from Aldi 1 Companies
LGIE records that it is owed approximately £6.4m from six companies, being LGI Properties Amethyst, LGI
Properties Diamond, LGI Properties Emerald, LGI Properties Ruby, LGI Properties Sapphire (sic) and LGI
Properties Topaz (“the six PropCos”).
LGIE also records that it owes approximately £6.2m to three companies, being LGI Property Holdings
Germany, LGI Property Holdings Germany 2 and LGI Property Holdings 3 (“the three HoldCos”).
LGIOM staff have explained to us that these companies are collectively referred to as the “Aldi 1 Structure”. We
found that the six PropCos owned eleven Aldi supermarkets in Germany and that there was associated senior
debt due to RBS.
We have been contacted by a number of investors in the three HoldCos as LGIOM provide director, registered
agent and administrative services to me and these investors are generally concerned to recover their
investments. They have expressed both concern and confusion as to the involvement of LGIE in the Aldi 1
Structure.
We have found documents which we believe to be the prospectuses of the three HoldCos and note that there is
no mention in those prospectuses that LGIE will borrow money from the three HoldCos and then lend it to the
six PropCos. Rather, the prospectuses show that the three HoldCos will invest directly into the six PropCos. We
believe that this is the main reason for investor concern and LGIOM staff have explained to us that these
investor concerns have been expressed ever since investors first became aware of LGIE’s involvement in the
Aldi 1 Structure.
LGIOM staff explained to us that declarations of trust have purportedly been put in place between LGIE and the
three HoldCos whereby LGIE’s interests have been assigned to the three HoldCos.
In the time since our appointment, we have sought legal advice on these declarations of trust and we have
concluded, given the complexities involved and recognising the competing interests of LGIE and the investors
in the three HoldCos, that a determination of the issue by the Court will most likely be required.
In the meantime, five of the six HoldCos have been able to complete the sale of nine out of the eleven stores and
the remaining two stores are presently subject to an offer which has been accepted.
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Louis Group International (Europe) Limited (in liquidation)
As the business purpose of the six Propcos is effectively at an end, and in recognition that the net amounts
realised by the sale process after repaying the bank debt has been less than the recorded debts of the six
PropCos, it is necessary to put the six PropCos into liquidation and we have commenced that process.
For the purposes of this report, we consider it appropriate to ascribe no value to the LGIE interest in the Aldi 1
Structure however it may well be that there is some realisation as part of any final determination in the
liquidation process.
Note 3 – LGUK and Furphy and Davidson Loans
We found that LGIE records show an asset with a value of £2.5m which we believe relates to a shareholding in
LGUK. Related to that, we believe, is a liability to Messrs Furphy and Davidson of £2m.
Mr McCauley represented to us shortly after we were appointed as liquidators provisionally that after Messrs
Furphy and Davidson lent LGIE around £2m, they were given a charge over LGIE’s shares in LGUK and that
LGIE no longer has a financial interest in those shares.
Alan Louis told us in January 2013 that LGUK is insolvent and that he is its major creditor. He has not
permitted us any access to its financial records in order that we may independently verify that, rather he
informed us by letter that LGIE’s shares in LGUK were sold by LGIE, thus our request for information had “no
bearing”.
We noted that LGUK financial statements lodged with Companies House in the UK indicated that whilst LGUK
has substantial debts, it has reported shareholder funds of around £200k. LGIE was listed as the sole
shareholder.
We have had contact with Mr. Davidson and Mr Furphy and they have informed us that they have rescinded
any and all claims against LGIE’s shareholding in LGUK.
In its most recent annual return filed in March 2013, LGUK listed LGIE as its sole shareholder.
We consider it appropriate to ascribe a value of nil to this asset on the basis that the only available information
on LGUK indicates that it may be worth substantially less than £2.5m and its director, Mr. Louis claims that
LGUK is insolvent. We are unclear as to whether LGUK is still trading.
However, we do not accept either of Mr. Louis or Mr. McCauley’s representations that LGIE has no
shareholding interest in LGUK.
For the purposes of this report, we consider it appropriate to ascribe a liability value of £2m to loan from
Messrs Furphy and Davidson, however as yet we have not made any formal adjudication in that regard whilst
our investigations are continuing.
Note 4 – Loan to Alan Louis
According to LGIE’s records, it has advanced £5.6m to Alan Louis.
We wrote to Alan Louis, through his advocates, seeking an acknowledgement of this obligation and an
indication of if and when the amounts advanced will be repaid.
We received a letter from Alan Louis’ UK solicitors, Astwood Law, in which they state that he denies that any
payment is due by him and that a full response is being prepared. We await the full response as referred to in
this letter.
Our enquiries are ongoing.
Note 5 – Loan to Nils Hinrichsen
According to LGIE’s records an amount of £0.6m as due from Mr Nils Hinrichsen.
We wrote to Mr Hinrichsen seeking an acknowledgement of this obligation and an indication of if and when the
amount will be repaid.
Mr Hinrichsen has responded to our letter to state that according to his records he is not indebted to LGIE.
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Louis Group International (Europe) Limited (in liquidation)
Our enquiries are ongoing.
Note 6 – Other Assets
There are a number of other purported assets recorded in LGIE’s records, mainly investments in or loans to
other companies in the Louis Group.
The largest such asset recorded is a loan balance of around £1.05m due to LGIE from LGSA. As noted above,
LGSA is subject to business rescue proceedings in South Africa and it is not possible to determine a likely
recoverable value for this loan at this time.
A further loan in the amount of around £160k is recorded as being due from ICAT. We believe ICAT is likely a
reference to Smartsurv Wireless, a South African company which according to its website is affiliated with the
Louis Group.
For the purposes of this report we consider it prudent to ascribe a value of nil to these assets however our
enquiries are ongoing
Note 7 – Loans from LGSPI
As joint liquidators provisionally of LGSPI, we wrote to LGIE to demand repayment of £6,223,057 being the
amount shown in its records as being due to it by LGIE.
As joint liquidators provisionally of LGIE, we have responded to this demand stating that LGIE’s records
indicate a debt of £6,160,047, and that LGIE is unable to settle any element of this debt at this time.
There has been no change in this position.
Note 8 –Deed of Guarantee with LGSC
We found that LGIE has entered into a Deed of Guarantee with LGSC to guarantee the borrowings of LGSPI
from LGSC.
LGSC has made a demand for repayment of £23,599,343, US$2,269,648 and €45,406 from LGSPI. As LGSPI
has been unable to make repayment of these amounts, LGSC has made a formal demand to LGIE for repayment
of these amounts.
LGIE has communicated that it remains unable to meet these obligations as guarantor however nonetheless we
consider the liability to be due and payable by LGIE.
6