CASE STUDY TEMPLATE 1, 2 & 3 FOR FELLOW MEMBERSHIP APPLICATION - EACTP
CASE STUDY 2
FARM PARTNERSHIP
ROLE
CHIEF RESTRUCTURING ADVISOR
DATES
FEBRUARY 2010 - To date
(FROM & TO)
A
What were the key issues identified on the assignment
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B
What was the legal strength of the preference action arising from the liquidation of the
connected limited company and what was the time frame.
There is a hard core of vindictive creditors in the liquidation & adverse PR at a local level.
The liquidator stated he would not /unable to accept an offer of settlement as the creditors
wanted the specific bankruptcy of the partners.
The creditors were preventing the buying & selling of livestock.
The viability of the core farming business.
The need for other revenue generating sources i.e. alternate land use.
The viability of selling crops forward of delivery at a known price to aid business planning.
The pursuit of an insurance claim against the producers of contaminated livestock feed.
The aristocratical estate trustees were concerned, but supportive of loyal family businesses.
The contractual & emotive relationship with the aristocratical estate, emotive in the sense
those 3 generations live on the land in 2 farm houses.
Notice of termination had been given by the aristocratical estate i.e. to quit the land by 29th
September 2010 - the consequences were grave, leading to no business, no income & no
homes. An action that would affect 3 generations of the farm family.
The devastation in value for the partnership business due to the notice of termination.
The fact that farm planning i.e. livestock rearing and crop rotations involves 2 to 5 yr plans.
The large amount of unauthorised (under the tenancy agreement) building & improvements
over the 30 years had little or no value due to the notice of termination.
The challenge of any restructure of the business was that it would need to stand the scrutiny
of court action by the liquidator and other partnership creditors plus satisfy the aristocratical
estate to issue a fresh 20 year farm business tenancy.
What were the key actions identified as being necessary for the turnaround / restructuring
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A key action was to identify & understand the legal, financial & operational risks and either to
accept them or mitigate them.
Delay & frustrate the litigation of the liquidator to create time to develop and implement a
strategy to recover the business.
Consider & develop proposals to settle the claims of the liquidator.
Consider the viability of the liquidators and potential trustee appointments depending upon
any successful preference action.
Consider an application to the European Court of Human Rights regarding points of law.
A diagnostic business review of the partnership: issues identified an analysis of stakeholder
agendas, an estimated outcome statement under various scenarios (solvent restructure,
trade sale, PVA, & Bankruptcy) to establish the value breaks & consequences of those
options.
Create a team of advisors to implement the strategy including, litigation, insolvency &
corporate finance legal's, a branded valuation, refinance brokers coordinated by XYZ
partners.
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CASE STUDY TEMPLATE 1, 2 & 3 FOR FELLOW MEMBERSHIP APPLICATION - EACTP
8.
To make a substantive proposal to the aristocratical estate on a strategic, financial, &
management level taking account the interests of all stakeholders in the core farming activity
of the farm family.
9. Review of the impact of the disqualification action against one partner & factor in the
probable future bankruptcies of both partners as individuals and in partnership..
10. Develop a time to pay proposal to assist in the court defenses against the Liquidator.
C
Please provide brief details of the assignment including the type of business, sector, turnover etc
1.
The business is an agricultural business based in Wales, a tenancy farming approximately
1000 hectares including the head estate of an aristocratical family that had existed for 500
years.
2. The tenancy is a 20 yr business farm tenancy but has been farmed the for over 30 years.
3. The business is a 50:50 partnership between 2 brothers.
4. The business deals with both arable and animal stocks across with 3 generations working on
the farm supported with several employees and temporary labour.
5. The business engaged a farm consultancy both in terms of accountancy services, European &
UK grants and subsidy applications and crop/animal productivity.
6. The business has a yearend of 30th September and respective turnovers are £1mn (2009),
£880K (2008), £1.1mn (2007), £987K (2006), £2.7mn (2005) & £4.7mn (2004).
7. The balance sheet across the same period had net assets of between £62K (2004) & £317K
(2009).
8. An improving GP % of 5% to 60% in the period stabilising at 17%.
9. In the view of a leading agricultural valuation firm "Our initial view is that the properties have
been well farmed and maintained"
10. The partners had been directors of a limited company (Farmers XYZ Limited) registered in
England & Wales that dealt with the transportation, buying and selling of farm animals
(Cattle, & Sheep). The business supplied major supermarkets & achieved £13 million in sales,
but in 2007 foot & mouth severely restricted livestock movement, a trading standards legal
case relating to livestock movement devastated the business & it ceased. Principal customers
did not pay and a connected business transaction with the partnership became exposed to
insolvency legislation, hence the liquidators action for preference.
11. Farmers XYZ Limited was placed into a creditor's voluntary liquidation on the 28th July 2009.
12. At the time of the liquidation only one partner had been a director, he was disqualified as a
director, the other partner had resigned 12 months earlier.
D
How and when were these actions implemented?
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Following the initial mtg in January 2010 I arranged meetings with Litigation & Insolvency
lawyers, engaged a branded valuer, met with the farm management consultant, met with the
3 generations of the farm family, met with the aristocratical estate surveyor & conducted
necessary due diligence to draft the diagnostic report and create the skeleton argument for
the proposal for the aristocratical trustees of the estate. This process took 6 weeks.
Plan A was to create a solvent restructure of the business plus a new tenancy but to create a
structure that was flexible to mitigate the risks associated with the probable bankruptcies of
both partners.
The restructure plan involved the disposal of the business assets of the partnership plus the
addition of the business & assets of the sons of one partner plus an investment of funds from
a family friend. This was supported by formal valuations undertaken by the branded valuer,
the farm management consultant and completed by contractual sale documentation
(completed on 19th April 2010). The sale would be to a newly created limited company called
Farm No2 Ltd. The shareholding and directors would not involve the two partners; they
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CASE STUDY TEMPLATE 1, 2 & 3 FOR FELLOW MEMBERSHIP APPLICATION - EACTP
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would be other family members & the family friend. The two partners would act as
consultants on consultancy agreements with Farm No2 Ltd. This business would be
capitalised by £340k of partnership assets from Farm Partnership, £168K of assets from the
sons business & £200k from the family friend. The payment would be deferred terms over 10
years for the £340K, an exchange of shares for the £168K and a mixture of shares and loans
for the family friend.
The above restructure was presented to the aristocratical estate trustees in a report dated
12th March 2010 and a new 20 year farm business tenancy was issued to Farms No2 Limited
over the following 3 months. The proposal dealt with the reputational risks for the estate,
recapitalised the core farm business, dealt with several capital projects on the head estate,
established a financial base to replace aging farm equipment, allowed for effective business
planning and invest in new revenue generating schemes including a cross-country horse
riding circuit and other equine schemes.
The reformatted business is better able to deal with the rigors of farming in the future and to
compete with the larger agri-businesses. Financial projections for the new combined business
were produced to assist the new management.
The former trading activities of the farm partnership ceased and over time the partnership
would be wound down subject to the ongoing litigation with the Liquidator.
The insurance claim against the manufacturers of the contaminated livestock feed was
successful & received.
Between late 2010 and January 2013 the litigation action from the Liquidator gathered pace
with numerous court attendances. The courts established that the preference debt was due
from the two partners despite acknowledgement that the ultimate recipients of those monies
included others.
On 15th January 2013 the court ordered witness statements to be filed & served & to include
a copy of documents relied upon & setting out the position relating to the income &
expenditure, assets & liabilities for the two partners as Individuals as a partnership.
A time to pay proposal dated 28th January 2013 was prepared in support of the court order
including a comprehensive estimated statement of affairs & outcome statements for all three
estates including assumptions, schedules of creditors & court actions plus claim
documentation relating to the liquidator, the bank, the parents of the two partners (1st
Generation farmers)and HP finance, plus the business sale agreement dated 19th April
2010.The additional claims apart from the liquidator were substantial. The financial
statements explored the following scenarios - Partnership & Individual Bankruptcies,
Partnership & interlocking voluntary arrangements and an informal settlement.
The time to pay proposal provided for an informal settlement; a 33p in the £ dividend
compared to 9p in the £ for bankruptcy. The parents would forego a dividend to improve the
position of the other creditors. Creditors would be treated pari passu & dividends would be
paid over the remaining 7 years of the deferred payment from the asset sale of the
partnership to Farms No2 Ltd. Furthermore creditors would need to sign an inter-creditor
agreement to regulate it.
Finally the time to pay agreement stated that bankruptcy was not in the best interest of the
general body of creditors neither the creditors of Farm Limited or creditors of the 3 separate
personal estates.
The proposal highlighted the concerns relating to a Liquidator being forced by his creditors
committee to be punitive rather than attempting to maximise the outcome for the general
body of creditors. The Liquidator has the ability to seek guidance of the court where the court
has residual discretion not to follow the wishes of the creditors committee.
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CASE STUDY TEMPLATE 1, 2 & 3 FOR FELLOW MEMBERSHIP APPLICATION - EACTP
E
What was the outcome of the assignment? Is it complete?
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2.
The initial diagnostic & due diligence report was completed in early 2010.
The proposal to the aristocratical estate trustees was delivered was successful and a new 20
year farm business tenancy established.
3. The new company "Farms No2 Limited" was successfully established and additional revenue
streams have been established.
4. The assets of the partnership were valued by a branded valuer; those valuations were used in
the sale agreements dated 19th April 2010.
5. The core business has been rescue, stabilised and growth is now taking place. These
represent all the core components of a turnaround.
6. Deferred consideration has been received by the Partnership for the past 3.25 yrs with 6.75
year remaining.
7. The preference action has been frustrated & is in its 4th year but the debt was confirmed by
the courts in late 2012.
8. Negotiations over the settlement of the debt has not been successful despite the time to pay
proposal.
9. The Liquidator now pursues bankruptcy petition against the individuals and partnership and
the two partners continue to defend their position.
10. Although the main phase of the business turnaround has been completed the bankruptcy
action continues to date. If those actions are successful then a new phase will commence
with the appointment of a "Trustee in bankruptcy". This will be a new agenda and will test
the strategies implemented in 2011.
F
What was the nature of your personal involvement in the case?
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I've been involved at every critical decision & initiative strategically & tactically since January
2010 to date.
I was introduced to the client from a litigation lawyer.
I had not been involved in any advice, transactions or events leading to the liquidation of
Farmers XYZ Ltd.
I considered I had no ethical or professional conflict in the assignment.
My first meeting was on 18th January 2010, my mandate was to devise & deliver a strategic
plan to save a well established Farming business from the consequences of a connected
Liquidation and preference action from the Liquidator. Failure would mean no business, no
income and no home for 3 generations of farmers (resulting evictions).
The preference Action could lead ultimately to the bankruptcy of the two partners.
Rather than a "normal" business restructuring / turnaround assignment this involved a deep
understanding of both corporate & personal insolvency, litigation tactics, agricultural sector
experience (I've dealt with several farms in my experience) and general business.
The assignment required sensitive & tactical communications with the liquidator, the
vindictive creditors, other partnership creditors, and the courts.
SIGNED
DATE
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