Clem Jackson reports on the impact on the trade resulting from the demise of the UK’s leading Christian media supplier

Two the world’s leading Christian publishers, Thomas Nelson and Zondervan, are in line to suffer losses exceeding £280,000 between them as a result of the collapse of IBS-STL UK at the end of 2009, according to information given to Christian Marketplace, by the administrators handling the winding up of the company. However this figure is significantly exceeded by the amount owed to UK publisher Scripture Union, which has submitted a claim for around £360,000 for ‘SU Product’, although this figure has “not yet been agreed by the administrators” according to latest letter to ‘all known creditors’.

Baker Tilly Restructuring and Recovery LLP (BTRR), the administrators appointed to undertake an Accelerated Merger and Acquisition process (AMA), issued the 59-page document to creditors detailing all aspects of the sale and asset recovery on 10th February. The documentation showed that at the end of its last financial year, (February 2009), the company had recorded a surplus of £25,000 on a turnover of £36 million and had £5 million in funds carried forward. Within 9 months the company was insolvent with debts in excess of £9.5 million.

The list of trade creditors shows that Thomas Nelson are owed £174,600 and Zondervan £151,000. Asked to confirm the rumoured estimate of a return to creditors between 12p and 30p in the pound,

Russell Cash, the joint administrator from BTRR, said, “Early indications do support the premise that the distribution may be within this range.” He declined to give an actual dividend figure “until such time as we have concluded asset realisations and agreed all creditor claims.” But based on these estimates the best that Nelson and Zondervan could hope to recover is £52,000 and £45,000. However they stand to lose up to £153,000 and £133,000 respectively if the lower (12p) figure is realised.

The other major publishing casualty amongst the trade creditors is Tyndale House who are owed £116,000. A number of other publishers are significant creditors including Harvest House (£57,000), Harper Collins (£22,000), Christian Focus (£22,000), Cambridge University Press (£21,000) and CWR (£19,000). Adare Limited are owed £180,000, Marston Book Services £103,000, and the Church of Scotland £76,000.

The 11-page list of trade creditors shows liabilities in excess of £2.5 million and behind the headline figures there are some interesting names including charitable trusts, local authorities and catering suppliers. Invenio Business Solutions, who provide SAP consulting services, are also owed £106,000 – somewhat ironic given that BTRR cite the “flawed IT (SAP) implementation” as one of the key factors leading to the downfall of the company.

Heading the list of secured creditors is Royal Bank of Scotland who are owed a total of £4.5 million, of which £1.45 million had already been paid. However it is unlikely that RBS will receive the full amount owed to them with an estimated shortfall in the region of £1.2 million.

Total liabilities revealed by BTRR amount to £9.5 million against estimated total assets of just under £2 million. Many creditors are understandably angry about these figures and have questioned whether BTRR have acted in the creditors’ best interests.

Responding to this criticism Russell Cash pointed out that when BTRR were appointed to review the business in November 2009, the company was “insolvent on a cash flow and balance sheet basis” He told Christian Marketplace, that a thorough AMA process was conducted, “in order to achieve a sale(s) and maximise the position for creditors.” He added, “Relative to most AMA processes, the timescales in this case were generous…

"This 4 week period allowed a significant number of interested parties to be identified and subsequently afforded the opportunity to review key business information and undertake further due diligence; a luxury not ordinarily available to prospective purchasers in distressed sale environments. I have no doubt this contributed to the higher than originally anticipated outcome for all classes of creditors.”

Questioned about the stock valuations and realisations Cash said; “The stock was valued by independent agents, Sanderson Weatherall Chartered Surveyors. Across all transactions, the realisations achieved were significantly in excess of the low case ‘forced sale’ valuation and also exceeded the high case ‘in situ’ valuation once likely costs of realisations and other factors leading to an erosion in realisable value are considered.”

However analysing the ‘Statement of Affairs’ of the company as at 18th December 2009 it appears that the book value of stock acquired by XYZ Realisations was almost £1.9 million but this was expected to realise only £184,000 in total (9.7%).

With regard to the stores it was confirmed that XYZ Realisations had vacated all 26 Wesley Owen stores on 8th February and that ten units are now occupied by Living Oasis Limited (LOL). The Administrators are liasing with LOL with regard to a number of others.

Cash was also asked about the absence of any reference to the acquisition of Authentic Music by Kingsway in any of the documentation. He said; “This transaction was undertaken prior to the appointment of Administrators whilst the Company was under the control of the trustees. [We] understand the Trustees sought professional advice before the transaction was completed and they considered the deal was in the best interests of creditors.”

However he agreed that the Administrators have a general statutory responsibility to review the conduct of the trustees inthe period preceding their appointment and any transactions therein.

He added, “Accordingly, this transaction and the associated professional advice will be reviewed to ensure it was in fact conducted in the best interests of creditors. Following completion of this review, creditors will be informed of the outcome.”

The letter to creditors also revealed liabilities to employees, for redundancy and payments in lieu of notice, amounting to £390,000. This figure would have been significantly higher if John Ritchie, Koorong and CLC had not taken on the liabilities for the December payroll, amounting to over £256,000.

Asked whether this had impacted on the purchase price paid by these companies Cash responded; “All assets have been realised for amounts in excess of ‘forced sale’ valuations and on the advice of professionally qualified agents.” He did however add that, “Had the Joint Administrators not structured the sale consideration to include this contribution to employee costs, the liabilities due to the preferential creditors would have been significantly higher.”

He indicated that, had this been the case, the Joint Administrators might have been left with “insufficient funds to repay preferential claims in full and may not have had surplus funds to pass to a liquidator to distribute to the general body of unsecured creditors.”

BTRR received total fees of £45,000 for the Independent Business Review carried out in August 2009 and £132,000 in respect of the AMA process, which were paid prior to the appointment of the Joint Adminstrators.

A meeting of creditors was scheduled to take place at the BTRR offices in Manchester on 26th February to consider the Joint Adminstrators’ proposals and for creditors, if they see fit, to establish a creditors committee.

March 2010

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