CHP 11/0097 - Foundations Program Plc (in liquidation) ("FPP")
CHP 11/0098 - FPA Limited (in liquidation) ("FPA")
Update 23 February 2015
Please read this update in conjunction with the 1 August update which sets out the background and defines terms.
Glossary
Foundations Program plc - in liquidation ("FPP")
FPA Limited - in liquidation ("FPA")
Joint Liquidators and Joint Official Receivers ("JL&JORs")
Note for Participants and Loan Note Holders (LNHs) and other creditors of FPP & FPA
Update and general explanation of JL&JORs next steps relevant to the liquidations of FPA and FPP
Points valuations
Following representations made by a number of Participants, the JL&JORs have reviewed the range of investments held within the assigned assets. The purpose of the review was to consider whether the appropriate weighting had been applied to certain classes of investments especially those that might attract a 0% rate, as this may have a significant impact on individual Participants’ recovery (and would result in a consequential impact on all Participants’ recoveries). By way of background, the Offering Document set out the basis on which points’ “weightings” would be set. As investments vary significantly in their structures and aims, the Offering Document set out five broad categories of assets and “ascribed estimated Discount Rates” as follows:
| Asset type | Discount Rate | ||
| Cash | 100% | ||
| AA rated corporate or sovreign debt | 90% | ||
| Endowment with profit policies | 80% | ||
| Quoted securities or funds | 70% | ||
| Others | discretionary |
This was qualified by a note stating: “The Directors have an absolute discretion to reduce or to increase any Discount Rate, either generally or on a case-by-case basis….”. The Program systems included the initial investment types together with the Discount Rate (as defined by the Offering Document) set by the Directors. Subsequent additions to the investment held within policies were not fully brought into the system and, therefore, do not have a Discount Rate determined by the Directors. In order to treat all Participants fairly (and so as not to prejudice those Participants who have not had their “Discount Rate” applied by the Directors at the relevant time) the JL&JORs have exercised their discretion and set a Discount Rate for those additional investments. For the avoidance of doubt, the JL&JORs have not made any adjustments to the Discount Rates set by the Directors.
As a result of this review, a number of amendments have been made to the points calculations. Whilst these are not significant over the total number of points generated, nonetheless the changes mean that every Participants’ points have been re-calculated.
There is no formal provision in the rules governing the winding up of the Program that caters for the sharing of losses by means of the points system. Accordingly, the JL&JORs propose issuing one further statement setting out the allocation of points to Participants with a final opportunity for Participants to challenge the calculations.
However, there is one outstanding matter that prevents this from taking place now. One Participant has claimed that the assignment of three life policies in his name have not been validly assigned to the Program. The JL&JORs have taken legal advice from its Manx Advocates and subsequently from English Counsel and having considered that advice the JL&JORs have concluded that the Participant cannot resile from the assignment of the life policies. The Participant has engaged legal advisers and they have written a letter before action to the JL&JORs – this means that we are on notice that proceedings may be initiated. The JL&JORs responded fully to that letter and we await further developments. If the Participant were successful, a further round of re-calculation would be necessary. Accordingly, the JL&JORs do not propose circulating the statement of points until the outcome of this matter is known.
Policy redemptions
In the last quarter of 2014, the JL&JORs contacted Participants to give them the option of purchasing their life policies from the JL&JORs for full value and thus retain any long term benefits. A number of Participants expressed an interest and were duly provided with the necessary information to complete the purchase. By the deadline, no Participant chose to complete a transaction and policies are now in course of being fully redeemed.
The surrender forms and associated documents have been signed off by the Bank (as owners) and have been submitted to the life companies. Funds are paid into a designated account at Barclays Bank. Early indications are that a number of policies hold investments that are suspended. The investments are those that had previously been selected by Participants or their investment advisers. The JL&JORs will provide an overview of realisations when the surrender process has been completed. Creditors should note however, that it will not be possible to attribute values to suspended investments as these circumstances mean that they cannot be realised at this time. Of course, future realisations from suspended investments will ultimately be available for distribution to creditors.
In the near future, the funds raised by the surrender process will be sufficient to discharge the Barclays liability. This will be done as soon as possible. Following this, the remaining funds will be in the direct control of the JL&JORs and any remaining policies that are partially or fully intact will be reassigned by Barclays to the JL&JORs.
Lonscale Holdings Limited (“LHL”)
Creditors should refer to the Update of 28 February 2013 for the background to the Program’s investment in LHL. Since the last update the JL&JORs have received notice that the company was to be wound up on the grounds that it was unable to meet its liabilities. An Order to wind up LHL was made by the Royal Court of Guernsey on the 4 November 2014. In short, the Program acquired a minority investment in LHL. LHL invested through various companies into the ClubEasy Group (student accommodation). The LHL acquisition was dependent upon the payment of deferred consideration over a period of time. At the time that the Program went into liquidation, LHL was already in default of its payment schedule. Despite this, the directors of the Program maintained in their statement of affairs that the investment in LHL carried significant value.
The JL&JORs had seen no evidence to support this assertion and the recent winding up order has, regrettably, shown, in the JL&JORs’ opinion, that the directors were not justified in their claims.
Other recovery actions
The JL&JORs have investigated a number of options to consider whether other recoveries for the benefit of creditors are available to them. The JL&JORs will also need to seek the sanction of the Court before issuing any such proceedings. Until completion of this investigation and possible instigation of a recovery process through formal Court Proceedings, it is not appropriate to disclose further details at this stage.
Further announcements will be made as and when any additional recovery processes are completed or any recovery proceedings are in the public domain.
Interim distribution
At the current time there are still a significant number of life policies that have yet to complete the redemption process. The JL&JORs will issue an update as soon as possible giving details of the gross values of policy proceeds. The level of funds is, of course, crucial in considering whether a distribution can be made.
The JL&JORs are working towards an interim distribution as soon as possible and will give a further status report before the end of March 2015.
23 February 2015