The initial report from Deloitte has revealed that Dutch banking group ING was owed £39.5m by Paperlinx. It was a breach of the covenants with this financier that precipitated the seismic events at Paperlinx’s UK and continental Europe businesses.
Deloitte’s Matt Smith and Neville Kahn were appointed joint administrators of 18 Paperlinx businesses on 1 April, including its main trading entities Robert Horne Group, The Paper Company, and Howard Smith Paper Group.
The administrators’ statement of proposals details the parlous state of Paperlinx UK, where losses at the EBIT level (earnings before interest and taxes) had ballooned from £9.7m to £19.9m in the eight months to the end of February, and were running at some £2m a month based on the management accounts.
Paperlinx UK had posted sales down 11% to £529.7m for the year to 30 June 2014, and made a net loss of £15.5m. In the period to the end of February 2015 sales were £296.6m, with a net loss of £20.2m.
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 £36.9m, according to the report.
Deloitte subsequently realised £7.2m by selling Paperlinx’s VTS business to Vink Holdings for £1.5m, its three packaging businesses (which were not in administration) to Antalis for £5.4m, and the reels business to Premier Paper for £300,000.
Retention of title claims have been received for around £23.2m of the £27.4m worth of stock on the firms’ books. Deloitte has brought in £158,277 (as at 15 May) in pallet collection charges made to suppliers retrieving their stock.
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 Netherlands operation subsequently 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 £21.6m, 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 10 June.
Deloitte’s fees and expenses, which were £2.5m at 15 May, will be fixed at that meeting.
A further £384,000 in professional legal and agent fees has also been incurred.
Creditors of the other 14 non-trading companies are being dealt with via post.
