According to the Lancashire Telegraph, the Official Receiver has sold the freehold, associated assets and goodwill of Store First‘s 15 storage centres to Store First Freeholds Limited.

The assets of the service company, SFM Services, have been transferred to Pay Store Limited.

Both Store First Freeholds Limited and Pay Store Limited are wholly owned by Jennifer Whittaker, reportedly the wife of Store First CEO Toby Whittaker.

According to the Official Receiver, the sale of Store First’s assets to companies owned by Toby Whittaker’s wife “represented the best outcome for creditors”. The consideration has not been disclosed.

The deal does not appear to mean any recovery for Store First investors – instead, they get the opportunity to surrender their pod (and the ongoing liability for business rates) with Mrs Whittaker’s company covering their cost.

The deal would also see requests by investors to surrender their pods accepted, with Pay Store covering any of the associated costs but no payments being issued to the former owners.

If you ever needed a clearer illustration that when an unregulated investment stops paying out and winding up orders start flying, you should write it off and expect nothing, this is it.

In this case nothing is apparently “the best outcome for creditors”. A sub-optimal outcome would be for unfortunate store pod owners to get less than nothing by holding a pod that they were unable to generate income from but left them liable for business rates.

A winding up order against Store First was originally launched by the Business Secretary back in July 2017. Store First reached an out-of-court settlement in May 2019.

An investigation into the cause of the collapse of the Store First investment opportunity continues, according to the Insolvency Service. According to the Government’s lawyer in the winding up case, over £200m was invested in Store First from UK pension funds and elsewhere.

Smith & Williamson has succeeding in seeing off rival Quantuma’s bid to investors to be appointed administrator of Park First.

A letter sent to Park First investors on Monday 2nd confirms Smith & Williamson’s proposals for the administration were accepted in full.

Smith & Williamson therefore cements its reputation as the go-to administrator if your unregulated investment scheme has just collapsed, having also been appointed to clean up after London Capital & Finance and Krono Partners (in all cases by the collapsed firms themselves).

Rumour has it that Park First is unlikely to be their last appointment in the sector.

Group First hit the phones in the weeks before the court date to find out which way investors would vote.

Smith & Williamson estimates its fees for the first year of the administration will stand at £1.17 million (it is unlikely Quantuma or any other credible rival would have been any cheaper).

Running parallel to the administration is an FCA court case against Park First, its owner and CEO Toby Whittaker, and other senior managers, seeking compensation on behalf of investors for losses they suffered in the scheme.

A crucial court date looms on Monday 25th as stricken Park First investors decide whether to appoint Park First’s own choice of administrators, Smith & Williamson, or rivals Quantuma LLP, proposed by an investor group and US investigators Safe or Scam.

A reminder of where we stand at the moment:

Back when the FCA shut down Park First as an illegal collective investment scheme, £33m of assets were ringfenced by the FCA to meet repayments to investors.

Smith & Williamson claimed that this sum would only be available to investors if they voted to appoint Smith & Williamson, otherwise Park First would withdraw it, and investors would risk getting nothing.

#TeamQuantuma claimed that this was false, and that the FCA had confirmed to Quantuma that the £33m was still ringfenced for investors regardless of which administrator they appointed.

Team Quantuma further claimed that the proposal to appoint Smith & Williamson in a Company Voluntary Arrangement amounted to allowing Park First to remain in charge of the business, writing off £115m owed by Park First group companies to the companies who owe investors money, and signing away their right to take action against the directors.

Smith & Williamson did not respond to my request for comment back in mid-October on whether their claim that investors had to appoint them to be sure of the £33m was “erroneous”. Nor has there been an update on their Park First minisite since 3 October. So make of that what you will.

According to Safe or Scam LLP, an 11th hour update from Smith & Williamson yesterday finally admitted that the £33m was not contingent on investors accepting S&W proposals, but said that Group First could still attempt to block payment if it didn’t get its way over the choice of administrator, which Safe or Scam LLP describe as “scaremongering”.

Quantuma of Solace

Quantuma’s efforts to persuade investors to give it the job (which is likely to be highly lucrative to either S&W or Quantuma, however much remains in the pot) have been stymied by S&W refusing to grant them access to investors’ contact details.

According to Team Quantuma, Group First has been telephoning all investors to try and find out how they will be voting on the 25th November.

Quantuma applied to the court for investors’ contact details so that they could put their own case, but S&W objected.

S&W say, hilariously, that allowing Quantuma to contact investors directly would put investors at risk of being targeted by scammers.

Hilarious because Park First have already been relentlessly targeted by scammers, using silly names like Herschel Escrow and Everton Rose, for months. These scammers generally claim that they know a Chinese investor who wants to buy your parking space for a huge sum, but first you have to put £7,500 in escrow / legal fees / blah blah / and now that money’s gone as well.

The important thing to note here is that Park First investors have confirmed in large numbers that the scammers did not just have their contact details, but knew that they owned a Park First car parking space.

That can’t happen without a major breach of General Data Protection Regulation on Park First’s part. How it managed to let part or all of its investor list fall into the hands of recovery scammers is beside the point (and will hopefully be fully investigated).

For its favoured administrators say that investors can’t speak to a rival in case they get targeted by scammers who already have their details, thanks to the lax GDPR compliance of the people who chose them, is a bit rich.

(Note well here that it does not matter from a data protection perspective whether scammers got hold of Park First investor details through incompetence, a rogue employee or something else. A breach is a breach, including one due to lax security and poor controls.)

The outcome is that the court did a Solomon and gave Quantuma only investors’ names and addresses. As 50% of Park First investors are reportedly in far-flung places like Russia, China and Malaysia, most of them will not receive postal correspondence in time for the 25th.

Team Quantuma has contacted 324 investors via a Facebook group, but this is of no help to victims in China as Facebook is banned there.

As Group First has had no compunction about ringing round investors to influence their vote, it is a bit like if the Tories were using the Government’s own databases to ring round the entire electorate and persuade them how to vote, but refusing to allow Labour to see the same list because “nah it’s data protection innit”.

Decision time

I am not going to tell investors to vote either way, and have no dog in this fight.

With so much money at stake, however, it is crucial that investors can make an informed decision. With that in mind, investors should read the updates from Smith & Williamson and the counterclaims by Quantuma’s advocates carefully.

If Park First’s own choice of administrators, Smith & Williamson, are appointed, the first job they have is to persuade creditors that they are acting in their interests and not those of the people who appointed them. S&W are a well-established firm and I have no doubt that they will comply with their legal duties to act in creditors’ interests, but that is not the same thing as winning creditors’ confidence; justice must also be seen to be done.

It would be a shame if their first step was to make their appointment look like a stitch-up.

A meeting of victims in the collapsed Park First investment scheme to approve the administrators’ proposals has been adjourned to 25 November, after a proposal to appoint alternative administrators was not included on the agenda.

Smith & Williamson (also administering Reyker Securities and London Capital and Finance) were the choice of Park First’s directors.

US-based Safe or Scam LLC has proposed an alternative administrator, Quantuma LLP (currently attempting to gain control of collapsed care home investment scheme Carlauren Group).

Safe or Scam characterise Smith & Williamson’s proposals as amounting to the write off of £115m of debt owed by Park First group companies to the companies in administration.

The administrator’s report confirms that the four Park First companies involved in the CVAs are owed a total of £115.4m by other companies in the Park First group, but that this £115.4m “has no recoverable value”.

They are actually saying that these four Park First companies transferred £115.4m to other group companies and there is no chance of recovering that money for the investors !  There has been no explanation why this money was transferred nor any explanation as to why is cannot be recovered.  The administrators are just expecting creditors to accept a loss of that magnitude because they tell them to.  So….. if creditors vote FOR the CVA proposals what effect would this have ? Well, if they vote FOR the proposals they would be agreeing to the following:

To write off £115.4m where the administrator has not even told them which companies took the money, why they were paid the money and why it is not possible to recover it; and

To sign away their rights to be able to take any form of recovery action against any of the parties involved; and

To allow the existing management to continue to run the businesses without any investigation into their conduct or the possible misappropriation of funds.

I asked S&W for comment on whether this was an accurate description of their proposals a week ago, and have not received a reply.

In a subsequent blog post on Saturday 12th October, Safe or Scam accused S&W of misinforming creditors by implying that a proposed £33m cash injection from Group First companies was contingent on Smith & Williamson’s proposals (including the £115m debt write off) being accepted, and the company entering a Company Voluntary Arrangement.

In short: either take £33m or risk getting nothing.

According to SOS, this was “erroneous”; the FCA has confirmed to rival suitors Quantuma LLP that the £33m should still be available to a liquidator, whether the original proposals are accepted or not.

The meeting of creditors has been rescheduled for the 25th at City Temple Conference Centre, London.

Comment

The rescheduled meeting sets up an intriguing clash for the fate of the administration between the Park First directors’ chosen administrators and Safe or Scam’s.

The parallel between London Capital & Finance and Park First goes beyond the fact that the unrelated collapses of both are being cleaned up by Smith & Williamson.

In both cases Smith & Williamson were appointed by the directors of the unregulated investment schemes themselves.

There is of course no suggestion that S&W are failing to carry out their statutory duties to act in the interests of creditors, over the people who appointed them if necessary.

There is also no question that the first job of an administrator of a collapsed unregulated investment scheme is to win the trust of creditors – and this goes double when the administrators were appointed by the people who lost their money in the first place.

Smith & Williamson’s appointment to London Capital & Finance was followed by a series of gaffes, which included unquestionably parroting the idea that LCF investors were sophisticated and high-net-worth (which very quickly turned out to be false), and saying on national radio that it was a good thing that LCF invested in a handful of companies linked to the directors, rather than hundreds of SMEs as investors had been led to believe, because it made the administrators’ job easier.

(Which is true, but the kind of thing you should look over your shoulder before saying if you’re at the Friday night office social, and is a downright stupid thing to say on national radio in front of stricken investors.)

S&W also claimed in the same interview that “the numbers all add up” and suggested investors could hope to get their money back; only to later reveal that what the numbers added up to was 80% losses as a best case scenario.

All that has however been left in the past, and there was no serious attempt to replace S&W with completely independent administrators of LCF investors’ own choice. Nor has there been any suggestion that S&W hasn’t maximised recoveries so far.

By contast, in the case of Park First Safe or Scam are accusing Smith & Williamson of being far too quick to effectively write off £115m of intercompany loans by proposing a Company Voluntary Arrangement.

Whichever choice the investors make, no-one can deny that more scrutiny over where the money went and whether it can be recovered is sorely needed.

Park First investors sue Park First and its directors for “fraudulent misrepresentation”

In other Park First news, a group of Park First investors are suing both Park First itself and Park First owner Toby Whittaker personally, alongside others including Park First director Ruth Almond, the Evening Standard reveals.

The investors are seeking £6 million which suggests that they represent a relatively small percentage of Park First investors.

A key part of the scheme was that the Park companies would sub-lease the plots back from the investors, offering a guaranteed return of 8%. The company said “projected returns” would rise to 10% in years three and four and 12% in the two following years.

In fact, the claim says, the sub-leases only lasted for two years, after which Park broke them and failed to provide subsequent services, leaving the plots impossible to sell. The investors also claim Whittaker’s companies misled them that they would easily be able to sell their spaces if they wanted to. There was no secondary market to buy them, which Whittaker knew, the case alleges.

The claim says some of the car parks in Glasgow were fenced off, making it impossible for them to return the kinds of profits being promised.

Park First director Ruth Almond said “The action will continue to be defended. We believe investors would be better served by pursuing options set out by the administrators.” That would be the option which apparently involves writing off most of the liability owed by Park First discussed above, then.

In general it takes exceptional circumstances for directors to be held personally liable for the failings of their companies; limited liability companies are called that as a reason.

Whether such circumstances exist remains to be proved in court.

Sadly, people investing lots of money in obscure micro-cap unregulated investments and losing all their money is not in itself an exceptional circumstance.

Update 17.10.19

The FCA has now also joined the legal fray, the Evening Standard reports.

The FCA’s action alleges that Park First was an illegal collective investment scheme, which we already knew as that was why it was originally shut down in late 2017 (not 2016 as the Standard says).

More seriously, the FCA alleges that Park First’s directors claimed the parking spaces were being sold at a 25% discount, based on independent valuations, but were “aware that the valuations were based on unrealistic returns”.

The FCA is suing Park First owner Toby Whittaker, director John Slater, Park First and numerous other connected firms, demanding the defendants repay a “just sum” to be distributed to victims.

The FCA has justified its lack of previous action, which allowed Park First to remain in control of the scheme’s assets, and its attempts to return the money to Park First investors, on the basis that if it had wound up the companies earlier, it might have made it less likely that investors got their money back.

Whether leaving Park First and its directors in overall charge of the money for another one-and-a-half years succeeded in increasing recoveries for investors remains to be seen.

In the original settlement in late 2017, the FCA secured a “promise” from Park First not to dispose of their assets, and ringfenced the sale proceeds of a car park at Luton Airport plus a further £1 million – £33m in total – to meet buyback payments for investors. This is the payment at the centre of the dispute above.

On Thursday 4th July the Financial Conduct Authority and Smith & Williamson announced that Park First had been put into administration.

Smith & Williamson appear to be rapidly becoming the go-to liquidator for major collapsed unregulated investment schemes. Smith & Williamson are of course also managing the London Capital & Finance administration, with two of their LCF team – Finbarr O’Connell and Adam Stephens – also appointed to Park First.

The investment

Park First promised “guaranteed” returns of 8% per year from investment in car parking spaces. It was launched in 2010 by Toby Whittaker, who in the same year launched Store First, largely the same investment model but with storage pods instead of parking spaces.

A few years after launch Store First ceased making “guaranteed” rental payments. Four Store First companies were put into liquidation in April, though the storage business continues to trade, so that customers can still access their stored property “until a longer-term solution is found” according to the Official Receiver.

Park First, by contrast, was shut down by the FCA in late 2017, who deemed Park First’s business model was an illegal unauthorised collective investment scheme.

After the FCA shutdown, Park First investors were given the option of either handing back their parking space and receiving their money back, for which they had to give Park First a year after the transfer of their parking space was completed, or to enter an alternative “lifetime leaseback” investment, which paid a return of only 2% (compared to the original “guaranteed” 8%) plus a variable non-guaranteed dividend.

The lifetime leaseback investment was apparently given the green light by the FCA as not a collective investment scheme.

At the time I wondered how many investors who were originally expecting an 8% “guaranteed” return would settle for 2% plus variable dividends. The answer appears to be not enough to save Park First from going bust. Park First has now put itself into voluntary liquidation.

Back in early 2016, a press release issued by Park First in 2016 claimed that their car parking assets had grown to £190 million. S&W say that Park First has approximately 6,000 investors. Park First spaces were sold for £20,000 each, so if they each bought one this would translate into £120 million invested. It is very likely that some investors held multiple spaces.

What has the FCA been doing?

The FCA’s version is as follows:

Park First agreed to stop operating and promoting the original schemes, although they did not accept that they had done anything wrong. They offered investors the choice of getting their initial investment back (which they described as a ‘Buyback’), or moving into a new ‘Lifetime Leaseback’ scheme, which was restructured to avoid the legal issues identified by the FCA. The Lifetime Leaseback is not a collective investment scheme and is not regulated by us. This was a better option for investors than the alternative which would have required the FCA to wind up the scheme, resulting in substantial losses to all investors.

Whether Park First’s recent collapse into voluntary liquidation represented a better outcome than winding the scheme up back in December 2017 will depend on what investors recover.

When Group First recently filed their 2018 accounts, they showed £32 million in net liabilities, a substantial contributor to which was a £111m provision for repaying Park First investors.

The FCA

allowed Park First until June 2018 to arrange Buybacks and Lifetime Leasebacks with investors. We also agreed that Park First should have time to make arrangements to pay all investors in full who wanted a Buyback.

As the clock for repayment started ticking after the buybacks were arranged, this essentially gave Park First until June 2019 to repay investors who opted for Buyback.

Park First has however been unable to raise sufficient funds to pay everyone back.

According to the administrators:

Professional advice was sought and the directors of the Companies were advised that to make any further payments to Buy-Back creditors may result in a preference of one creditor over another and hence that the Companies were insolvent and that they should be placed into administration to provide protection for the creditors.

The administrators plan to contact both Lifetime Leaseback and Buyback investors with proposals for voluntary liquidation in the coming months.

With the FCA watching over their shoulder, earlier this year Park First sold their Luton car park, with the proceeds ring fenced for investors.

We also ensured that Park First promised not to dispose of their assets, and that they ringfenced their major asset, a cark park at Luton Airport, which was not owned by the scheme, to meet Buyback payments. Earlier this year the Luton car park was sold and the FCA required the proceeds of sale – £32 million – to be held securely in a solicitor’s client account. Those funds are to be used for the benefit of investors. A further £1 million contributed by a party connected to Park First is also held securely. The FCA believes, and the directors of Park First have agreed, that these funds should be made available for the purpose of the CVAs that the joint administrators anticipate proposing.

Well, it’s a start.

Store First update; investors warned re recovery fraud

In other Group First news, there have been no substantial developments on Store First since the four companies were placed into liquidation two months ago. No substantial updates have yet been published by the Official Receiver or Companies House.

The Official Receiver did update their announcement on the liquidation in May and again in July, but this update seems to have been limited to a warning to Store First investors to beware of recovery fraud.

Park First investors have already been repeatedly targeted by recovery fraud outfits, using names like Herschel Escrow, GRL and Everton Rose. Whatever the name, the spiel is the same – the scammer claims they can sell the investor’s parking space if the investor hands over money for “legal fees” or “escrow”. This money is of course never seen again.

If Store First is any guide, Park First investors are now likely to be targeted by people ringing them up or emailing them and falsely claiming they represent the liquidators.