The initial report from Paperlinx UK administrator Deloitte has revealed that Dutch banking group ING was owed £39.5m (A$80m) by the company, and it was a breach of the covenants with ING that initiated the seismic events forcing Paperlinx out of the UK and Europe.
ProPrint sister magazine in the UK Printweek reports that Deloitte’s statement of proposals details the parlous state of Paperlinx UK, where losses at the EBIT level (earnings before interest and taxes) had ballooned from just under $20m to $40m in the eight months to the end of February.
Based on the management accounts Paperlinx UK alone was losing $1m a week. Paperlinx UK had posted sales down 11 per cent to $1.03bn for the year to 30 June 2014, and made a net loss of $31m. In the period to the end of February 2015 sales were just $300m, with a net loss of $40m.
Attempts to sell the entire business as a going concern foundered due to “the levels of operating losses and supplier and other debts”, said Deloitte. This included a pension deficit of $73m, according to the report.
Deloitte subsequently realised $14m by selling Paperlinx’s VTS business for $3m and its three packaging businesses, which were not in administration, for $11m.
Biggest winner of the collapse appears to be Deloitte itself, its fees and expenses had racked up to an astonishing $5m in the six weeks May 15. A further$750,000 in professional legal and agent fees has also been incurred.Creditors of the other 14 non-trading companies are being dealt with via post.
The level of complexity around the administration is illustrated by the fact that ING ‘has effective ownership of the trade debtor book of Howard Smith Paper Group and Robert Horne Group’ until its debt is repaid in full, said Deloitte, and those UK debtor books can also be called on to fund any deficit ING has in relation to its funding of the Paperlinx Netherlands business.
Although the Netherlnds operation ceased trading the administrators currently expect ING to be repaid from the proceeds of the Dutch debtor collection. However the risk of a claim remains and until ING is repaid in full it is unlikely that any excess proceeds due to the company would be released.
Secured creditor RBS Invoice Finance was owed $43m, and is expected to be paid in full.
The picture for unsecured creditors is not yet clear. The administrators currently expect that ‘there will be sufficient asset realisations to enable some level of distribution to be made to unsecured creditors of The Paper Company, Robert Horne, Paperlinx Treasury, and Paperlinx Investments’ although any dividend is likely to be ‘modest’.
A dividend to unsecured creditors of Howard Smith Paper Group and Paperlinx Europe will depend upon whether there is a surplus related to the ING debtor facility, which is ‘presently uncertain’.
A creditors’ meeting for Paperlinx Services (Europe), The Paper Company, Howard Smith Paper Group and Robert Horne Group has been arranged for Wednesday in the UK.
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