Stokes founded the firm in 1972, growing it to a £5.4m turnover business, before selling it in December 2014 to Evinco Holdings.
David Birne and Brian Johnson of Fisher Partners were appointed joint administrators of the 54-staff short-run magazine printing company last Wednesday (4 March).
Stokes’ acquisition vehicle, The Enfield Printing Company (EPC), bought the assets and goodwill of MPC for £300,000 on the same day. All 54 staff have been kept on.
The business, which operates a range of Heidelberg presses and Muller Martini binding lines, will continue to operate under the trading name The Magazine Printing Company.
A report sent by the administrators to creditors and suppliers seen by PrintWeek said that the company’s problems had started on 10 December 2014, following a sale of the company’s shares to Evinco Holdings, which the joint administrators believed was "owned by [Neil] Sharp".
While the sole director of Evinco when it bought MPC on 10 December was Alison Vandyken, her appointment was subsequently terminated on 13 February 2015 when she was replaced by Sharp.
Stokes said he had been in negotiations with Sharp about buying MPC since "September or October last year".
Evinco bought MPC from Stokes, who had been trying to sell the company "for a significant period of time", on 10 December for £1.5m. £1m of this was paid up front and £500,000 was to be provided by deferred consideration.
The purchase of MPC was largely financed by way of a refinance of the company’s assets in order to release enough cash to meet the initial £1m down payment. The hire purchase liability secured against plant and machinery was increased from £161,848 to £727,463. This re-finance was predominantly done via asset finance company Five Arrows Business Finance, according to Fisher Partners.
Additionally, Sharp obtained a £300,000 short-term loan in December from factoring specialist Nucleus Commercial Finance, which was later reduced to £275,000. Nucleus Invoice Finance also took over the factoring facility from the previous invoice financier.
The short-term loan cost £25,000 per calendar month and the terms of the loan included full repayment during March 2015.
After securing the loan and refinancing MPC's assets, the sum of £1m was paid by MPC to Evinco and shown as a loan. The joint administrators state that "Evinco then paid the funds on to the vendor, Mr Stokes".
Following the sale, Stokes became a non-executive chairman employed by way of a consultancy.
Prior to the sale, Sharp is alleged to have told Stokes that he would be able to transfer £2.5m of the turnover from Williams Press (Berks) to MPC; Williams Press fell into administration on 23 December. Sharp subsequently acquired the customer list from Quantuma.
“He told me in October that he owned Williams Press and that he was closing it down before Christmas and could swing over some of the work into MPC and that would make it very viable and very profitable, and by doing that he would be able to pay me what I wanted for the business," said Stokes.
Sharp has previously told PrintWeek that he had no official capacity at Williams Press but served as a sales consultant.
“His business plan stacked up and it looked like there was no way that he couldn’t make a success of MPC by bringing in this work," said Stokes. “I didn’t know at the time that he was going to get the initial down payment of £1m by raising money from the company by refinancing all the kit. I’ll be very lucky if I walk away with £250,000 of the £1m I was paid, it’s cost me that much to get the whole thing straightened out."
MPC quickly went from being a profitable business with a turnover of around £5.5m to a struggling business. The firm, which had posted profits before tax every year since 2009, suffered a £104,000 loss before tax for the month ending 31 December 2014 and a loss of £80,000 for the month ending 31 Jan 2015.
“Neil Sharp’s plan was that MPC was going to be his cash cow and his salvation. He thought he’d be able to bring his work in here, that it would be very profitable and that he’d be able to pay back all his debts. He didn’t do his cashflow correctly and he very quickly ran into a major cashflow problem," said Stokes.
The administrators' report states that the strain on cashflow was felt rapidly as, shortly after the share sale transaction, Lloyds Banking Group withdrew a £100,000 overdraft facility leading Stokes to inject around £150,000 into the business by way of an unsecured loan to enable it to meet its liabilities.
New financing was sought for working capital during January, but the directors could not obtain any. This was compounded by MPC being unable to obtain credit from suppliers who were concerned about the change in ownership. This left the company paying cash on delivery.
Concerned about the recoverability of its short-term loan, Nucleus Commercial Finance contacted Fisher Partners in early February after Stokes threatened to issue a winding-up petition in relation to the unsecured £150,000 cashflow loan he provided to MPC in December.
Stokes spoke with Nucleus, as the senior charge-holder, about possibly re-purchasing the shares to save the business but said he was unable to make a meaningful offer due to being unable to access the accounting records he required in order to consider the present value of the company.
Stokes also repaid the £275,000 short-term loan provided by Nucleus through his company EPC, which took over the associated debenture. Nucleus remained the senior charge-holder in its capacity as MPC's invoice finance provider.
"Nucleus had a debenture on the book debt so they were in a very strong position to force Neil Sharp out of the company. He still owned it but he was forced out of running it. We were then able to look into the books and saw this horrendous mess that had been built up over three months," said Stokes.
According to the report, on 18 February Sharp, still "the ultimate beneficial owner of the company", provided written notice terminating the appointments of MPC directors Glyn Bengree, Steven Wilkinson and Alison Vandyken, who was appointed on 10 December, and appointed himself as the sole director.
“Because he had the codes to get into Companies House, he sacked all the directors, closed the company down at 7pm and shut the IT system down, and we work 24/7 printing weekly magazines overnight. On that night, we had a conference call to try and get him to take this block-out off. I was trying to keep the company trading and not harm it,” said Stokes.
“To do so I had to pay £25,000 straight into his bank account and he agreed to reinstate the directors and the company the next day at 6am and signed some legal documents to say that he wouldn’t harm the company or approach our customers.”
Bengree and Wilkinson were reinstated along with Stokes and Sharp’s appointment was terminated. Vandyken was not reinstated.
The report says that a range of other options, including a CVA and marketing the company, were also considered. However, a pre-pack was recommended because the company had no working capital to continue trading after 2 March and that these processes would have taken too long and cost too much to be viable.
“The original idea of selling this company was that it was going to be my pension. The idea of me coming back in and reinvesting the majority of my pension pot into the company is to save 54 jobs and to keep the company trading,” said Stokes.
“It’s not a pre-pack in the normal sense, this is the ex-owner of the company who’s buying it back off the administrator after having previously sold the company.
“What motivated me to buy it back is to get the rest of my pension and because I know the company, run correctly, is a very viable company. But we couldn’t run with the horrendous debts it had built up.”
Magazine Printing Company’s largest unsecured creditor was Stokes, for his outstanding deferred consideration in relation to the sale of his shareholding and separate loan. These amounts total £655,000, not including his £275,000 secured loan (acquired from Nucleus).
Stokes said the majority of the firm’s suppliers have come back on board and agreed to continue to trade with MPC going forwards, on a 'cash with order' basis.
Sharp was contacted by PrintWeek and said: “I don’t have any comment because I’m not involved in the company. I do finance now and I’m nothing to do with print.”
