A High Street Group subsidiary has been put into administration following a battle with a creditor in the High Court on 30 September. (Hat tip to an anonymous reader who pointed me to the case report.)
For clarity, I will emphasise that neither High Street Commercial Finance Limited, which issues the loans covered in my 2018 review, nor the holding company High Street Grp Limited are in administration. The company which is in administration, High Street Rooftop Holdings Limited, is another subsidiary of High Street Grp.
The story goes as follows: Strategic Advantage SPC is a company in the Cayman Islands which invests on behalf of “Korean blue-chip investors”.
Strategic Advantage employed Hypa Asset Management Limited and its two directors Simon Welsh and Marc Hounsell. Through Hypa, Strategic Advantage invested £26 million into rooftop projects run by High Street Rooftop Holdings in 2018. High Street Rooftop promised an interest rate of 16.5% in return, with the loans to be repaid in 18 months, being December 2019 and January 2020.
January came and went without High Street Rooftop paying the money back.
High Street Rooftop promised to repay according to a specified schedule and undertook to provide audited and group accounts by March 2020. Neither of these conditions were met.
(As regular readers will know, High Street Group has failed to file legally-required accounts not just for High Street Rooftop but the parent company High Street Grp and High Street Commercial Finance. The latter two companies are a whole year overdue.)
Strategic Advantage had had enough and applied to put High Street Rooftop into administration. High Street Rooftop claimed that the payment dates had been varied such that it wasn’t overdue, and the original loan agreement could no longer be enforced.
High Street Group owner Gary Forrest claimed in court that a few weeks after borrowing the money, in July 2018, “it became clear that the rooftop developments would not proceed to completion quickly enough for the Company to meet its repayment obligation due to delays in obtaining planning permission“.
In Forrest’s version, he proposed to Hounsell that £20 million of Strategic Advantage’s money should be redeployed to other High Street Group projects, known as the PRS Developments, which were due to complete on various dates between October 2020 and February 2023. Forrest claimed that Hounsell agreed – and in doing so accepted that Strategic Advantage would have to wait until the projects completed for its money, voiding the original early 2020 repayment date.
In support of his version of events, Forrest cites an exchange of text messages which no longer exists.
Mr Forrest says that he believes this exchange with Mr Hounsell took place over text message but he no longer has access to his texts.
In the words of the judge, “Mr Hounsell’s account of his dealings with Mr Forrest is very different.” Hounsell denies ever agreeing to allow Strategic Advantage’s money to be moved to other HSG projects.
Among the evidence cited by Hounsell is:
- a letter written by Forrest in July 2018 confirming the originally agreed repayment dates and containing no reference to using the money for other HSG projects with considerably longer timescales
- an email exchange in August 2018 in which Forrest agreed to meet with a Strategic Advantage investor, to present the merits of the PRS Developments as a new project – which Hounsell submits made no sense if Strategic Advantage knew that their money had already been redeployed to PRS
High Street Rooftop argued that Forrest and Hounsell should be cross-examined and that other witnesses should be called to determine who was telling the truth. Judge Andrew Sutcliffe QC rejected this argument on the basis that HSG and Strategic Advantage had agreed that the loan agreement should only be varied in writing, and there was no evidence in writing to support High Street Rooftop’s contention that Strategic Advantage had agreed to wait longer for its money, among other more technical arguments.
The judge therefore rejected High Street Rooftop’s argument that Strategic Advantage could not enforce its loans, even though High Street Rooftop had not only failed to meet the original repayment dates but a renegotiated payment schedule and an agreement to provide audited accounts.
High Street Rooftop also argued that it should not be put into administration on the grounds that the purpose of an administration could not be fulfilled.
This argument was essentially a legalistic version of that old chestnut ‘everything will be fine as long as you don’t ask for the money back’.
[High Street Rooftop] state that the Company’s assets (namely the funding received under the [Strategic Advantage] facility) have been invested in the PRS Developments which will not realise any genuine commercial value until such time as those developments are completed. They say that the likelihood of the PRS Developments being completed on time and in a manner that achieves any realisation for the Company will be significantly impacted if an administration order is made.
High Street Rooftop stated that enforcing the loan and putting them into administration will not only prevent them seeing the PRS Developments through to completion, but impact the wider High Street Group as well.
They also say that the Company has spoken to BLME and Topland Jupiter Ltd (Topland), the secured creditors of Group companies carrying out two of the PRS Developments, namely, Olympius Developments Ltd (Olympius) and Rodus Developments Ltd (Rodus), who have indicated that if an administration order is made in respect of the Company, they will exercise their enforcement rights in respect of their security and appoint receivers over the PRS Developments managed by those companies, being Hadrian’s Tower in Newcastle and Middlewood Plaza in Salford.
The aspiring administrators, for their part, explained to the court why putting High Street Rooftop into administration should proceed.
Following the granting of an administration order, the Administrators would be in a position to investigate the ultimate destination/flow of the funds borrowed by High Street Rooftop and in turn lent to group companies. In order to maximise the position for creditors, the Administrators would seek to take steps to recover the funds from across the group on the basis these represent inter-company debtor balances.
The high-pitched sound you can hear is the squeaking of bums belonging to other High Street Group investors.
As described above, at the time of the hearing High Street Rooftop had still failed to file accounts for December 2018 or meet its promise to provide Strategic Advantage with audited group accounts.
Instead, HSG Finance Director Joanne Bell made a witness statement and provided various documents:
- a letter from HSG’s “external accountants” Stokoe Rodger LLP (Ms Bell stated that PwC, who are supposedly compiling HSG’s long-awaited statutory accounts, could not provide anything to the court for “reasons connected with workload and Covid-19” (at least she didn’t blame Brexit)
- draft 2019 statutory accounts and 2020 management accounts for High Street Rooftop
- management accounts for Rodus, one of the PRS projects
- a cashflow analysis and up to date values for the PRS developments
- a financial forecast for High Street Rooftop
High Street Rooftop claimed that these documents showed it to be solvent and that Strategic Advantage would get its money back.
Strategic Advantage responded that
- High Street Rooftop had failed to take into account the interest it owed
- “The further evidence raises more questions than it answers” – specifically, by including £9.7 million of “prepayments” and causing a liability for “inter-company payables” to disappear, the 2020 balance sheet had “been inflated” from £25k to £9.8 million “without any satisfactory explanation as to how this has happened”.
The judge accepted Strategic Advantage’s first point and stated that “On the basis that very substantial interest liabilities have already accrued and will continue to accrue and it is not explained how the Company could meet this obligation to pay interest… the inevitable concusion is that High Street Rooftop is already insolvent or likely to become insolvent”.
The judge also agreed that “it is regrettable that no explanation has been provided” for the alleged balance sheet inflation, and the failure of High Street Rooftop to provide an adequate explanation “raises further questions as to the reliability of [High Street Rooftop’s] financial information”.
High Street Rooftop’s argument that it shouldn’t be put into administration because Strategic Advantage was going to get its money back eventually was therefore rejected.
High Street Rooftop’s last resort was to get the onion out.
Mr Brown’s evidence is that the making of an administration order over the
Company could have a hugely detrimental impact across the Group, with the
potential loss of hundreds of jobs and the cessation of building of thousands of
new homes as well as hotels and commercial properties. […] Mr Forrest says that an insolvency event for one of the companies in the Group is likely to have wide ranging and serious implications for the rest of the Group which could be catastrophic for the individuals concerned, with some 300 full-time employees and 1,000 subcontractors being affected.
The judge confirmed he was “acutely conscious” of these potential consequences, but that they did not override Strategic Advantage’s right to enforce its debt.
In my judgment, a return to secured creditors is more likely to be achieved if licensed insolvency practitioners (rather than the existing management) are in control of the Company who can seek to ascertain full information regarding the financial position of the Company and take informed commercial decisions about safeguarding the Company’s assets and achieving a return to secured creditors.
Strategic Advantage’s application to put High Street Rooftop into administration was therefore granted.
What effect this has on the wider High Street Group, as feared by Gary Forrest, and the investors in its loan notes, remains to be seen.