ENTERTAINMENT RIGHTS OVERSEAS HOLDINGS LTD Case No. 12674 of 2009
(BOTH IN ADMINISTRATION)
STATEMENT OF PROPOSALS PURSUANT TO
PARAGRAPH 49 OF SCHEDULE B1 OF THE INSOLVENCY ACT 1986
6 MAY 2009
Nicholas Guy Edwards & Carlton Malcolm Siddle
Deloitte LLP
60 Shoe Lane
London
EC4A 3BQ
CONTENTS
1. BACKGROUND
2. THE CIRCUMSTANCES GIVING RISE TO THE APPLICATION FOR THE
ADMINISTRATION ORDER
3. THE MANNER IN WHICH THE AFFAIRS OF THE BUSINESS HAVE BEEN MANAGED AND FINANCED AND WILL CONTINUE TO BE MANAGED AND FINANCED IF THE PROPOSALS ARE APPROVED
4. ADMINISTRATORS FEES AND EXPENSES
5. OTHER INFORMATION TO ASSIST CREDITORS
6. STATEMENT OF PROPOSALS PURSUANT TO PARAGRAPH 49 OF SCHEDULE B1 OF THE INSOLVENCY ACT 1986
APPENDICES
1. Statutory Information of Entertainment Rights Plc
2. Statutory Information of Entertainment Rights Overseas Holdings Ltd
3. Summary of Directors’ Statements of Affairs of Entertainment Rights
Plc - To Follow
4. Summary of Directors’ Statements of Affairs of Entertainment Rights
Overseas Holdings Ltd - To Follow
5. Abstract of Receipts and Payments of Entertainment Rights PIc - To Follow
6. Abstract of Receipts and Payments of Entertainment Rights Overseas Holdings Ltd - To Follow
ABBREVIATIONS
For the purpose of this report the following abbreviations shall be used:
Act Insolvency Act 1986 (as amended)
the Administrators Refers to the Administrators, Nicholas Guy Edwards and Canton Malcolm Siddle
the Companies Entertainment Rights Plc and Entertainment Rights Overseas Holdings Ltd
Boomerang Boomerang Media LLC
Classic Media Cassic Media UK Limited and Classic Media Holdings ER, LLC
Close Brothers Close Brothers Corporate Finance Ltd
Deloitte Deloitte LLP
m Million
the Group Entertainment Rights Plc and its subsidiaries
the Lender Bank of Scotland plc
Rules The Insolvency Rules 1986
1 BACKGROUND
1.1 Introduction
This report is prepared pursuant to Paragraph 49 of Schedule B1 of the Act. The purpose of the report is to provide creditors with details of the Administrators’ proposals to achieve the purpose of the Administration Order.
To assist the creditors the following Information is included in the report;
• Background to the Companies;
• The circumstances giving rise to the Administration;
• the manner in which the affairs of the businesses have been managed;
• Realisations, fees and expenses; and
• Other Information to assist creditors.
As there are insufficient funds for a distribution to be made to unsecured creditors of the Companies other than by virtue of Section 176A(2)(a) of the Act, and in accordance with Paragraph 52(1)(b) or Schedule B1 of the Act, the Joint Administrators will not be convening a creditors’ meeting, unless required to do so.
Should creditors of the Companies, whose total debts amount to at least 10% of the total debts of the respective company, wish to request a meeting to be held they should complete the attached Form 2.21B and return it within the deadline stated. In the event that no requests (in the prescribed manner) are received within 12 days of issue of this statement, the proposals will be deemed approved..
If the Administrators receive such a request they will notify all other creditors and they will hold a meeting within 28 days of receipt of the request.
1.2 The Companies
Entertainment Rights Plc was Incorporated In July 1989. Statutory Information on the company including details of the Directors, Company Secretary and Shareholdings is provided in Appendix 1. Entertainment Rights Overseas Holdings Ltd was incorporated In December 2007 and was an intermediate holding company within the Group Statutory information is also provided in Appendix 2
The principal activity of Entertainment Rights Plc and its subsidiaries was exploiting a range or intellectual property that it either owned or had rights to on global level, the intellectual property was focused on children’s entertainment, particularly pre-schoolers, with revenue derived from both exploitation, of the brands themselves and their associated content.
Entertainment Rights Plc held the rights of various global characters, including
Postman Pat, Rupert Bear, Basil Brush, Where’s Wally?, Lassie, The Lone Ranger
Casper the Friendly Ghost, Veggitales, Guess with Jess, He-Man and the Masters
of the Universe, Fat Albert and the Cosby Kids, She—Ra and Jim Jam and Sunny, as well as limited rights to brands such as Barbie and Transformers.
Until the date of appointment of Administrators, Entertainment Rights Plc was listed on the main market of the London Stock Exchange and had banking facilities secured by a fixed and floating charge. debenture with cross guarantees from trading entities within the Group.
2 THE CIRCUMSTANCES GIVING RISE TO THE APPLICATION FOR THE ADMINISTRATION ORDER
2.1 Events Prior to the Administration
The Group’s growth until 2007 had largely been underpinned by small to medium sized UK acquisitions. In January 2007, it acquired Classic Media Holdings Inc a US business incorporating the Big Idea subsidiary, which more than doubled Group revenue.
In February 2007, the market capitalisatlon of Entertainment Rights Plc peaked at £267m but following poor results announced in September 2007 and a profit warning in January 2008, the market capltalisation had declined significantly to £20.5m by 22 October 2008.
The adverse economic environment which affected all divisions was compounded by the collapse of Woolworths plc and Circuit CIty in the United Kingdom and United States respectively. Trading was further impacted by the financial Instability of the Groups US distributor which resulted in an uncollectible debt post Christmas 2008 trading.
Entertainment Rights Plc sought advice from its professional advisers as to the options available that might preserve value In the Group. The company subsequently instructed their advisers, Close Brothers, to undertake a formal sale of business exercise as set out In paragraph 3.2 below.
Based on the offers received by Entertainment Rights Plc, the directors (following discussions with the Companies Lender) progressed the three offers that were of merit and it was subsequently concluded, in conjunction with the company’s professional advisers, that the transaction could only be effected by way of an Administration of the Companies.
2.2 Details of the Appointments of Administrators
Nicholas Guy Edwards and Canton Malcolm Siddle, partners in Deloitte LLP, were appointed Administrators of the Companies on 1 April 2009. The appointments were made by the High Court in London (Court reference number 12673 of 2009 and 12674 of 2009) following an application by the directors of the Companies.
For the purposes of Paragraph 100 of Schedule B1 of the Act the Administrators have confirmed that they are authorised to carry out all functions, duties and powers by any of them jointly or severally.
2.3 Purpose of the Administration -
From 15 September 2003 the Enterprise Act 2002 replaced the previous four purposes of administration with one overarching purpose, split into a three part single purpose:
i. firstly, to rescue a company as a going concern (in other words a restructuring which keeps the entity intact).
ii. Secondly, If the first purpose is not reasonably practicable (or the second purpose would clearly be better for the creditors as a whole), then the Administrator must perform his functions with the objective of achieving a better result for creditors than would be obtained through an Immediate liquidation of the company. This would normally be by a sale of the business and assets as a going concern.
iii. Thirdly, if neither of the first two parts or the purpose are reasonably practicable, the Administrator must perform his functions with the objective of realising property in order to make a distribution to secured and/or preferential creditors.
The Administrator must perform his functions with the objective specified In (i) above unless he thinks that it is not reasonably practicable to achieve or that the objective in (ii) would achieve a better result for the company’s creditors as a whole. The Administrator may only perform his functions with the objective specified In (iii) above if be thinks that it will not, unnecessarily harm the interests of the creditors of the company as a whole and that the objectives in (I) and (II) are not reasonably practicable to achieve.
Having given careful consideration to the prescribed objectives the Administrators concluded that the second objective namely “achieving a better result for creditors than would be obtained through an immediate liquidation of the Company” was achievable and that is the purpose of the Administration of both of the Companies. The Administrators concluded that an Administration process would enable then to rapidly sell the shares in the subsidiaries of the Companies such that there was minimal disruption to ongoing trading, minimising any loss of value in the Group as a whole and consequently enhancing the value of the Companies’ assets as compared to the outcome in liquidation.
2.4 Statements of Insolvency Practice (SIP) 16 Pre-packaged Sales in Administrations
The purpose of SIPs is to set out basic principles and essential procedures with which insolvency practitioners are required to comply.
In SIP 16, a ‘pre—packaged sale’ (or ‘pre—pack’) refers to an arrangement under which the sale of all or pant of a company’s business or assets is negotiated with a purchaser prior to the appointment of an Administrator, and the Administrator effects the, sale immediately on, or shortly after, his appointment. The sale to Classic Media (referred to in Section 3 of this report) constituted a pre-packaged sale as defined in SIP 16.
SIP 16 requires disclosure to be made to creditors in respect of the circumstances surrounding the sale and certain details of that sale. Full disclosure was made In our letter sent to all creditors On 1 April 2009 of which further copies are available on request.
3 THE MANNER IN WHICH THE AFFAIRS OF THE BUSINESS HAVE BEEN MANAGED AND FINANCED AND WILL CONTINIUE TO BE MANAGED AND FINANCED IF THE PROPOSALS ARE APPROVED
Following their appointment, the Administrators successfully concluded the sale of the Companies’ business and assets, namely being the 100% shareholdings in subsidiaries and intellectual property for total consideration of £60m to Classic Media UK Ltd and Classic Media Holdings ER LLC (owned by Boomerang).
3.1 Funding and Security
Entertainment Rights Plc had banking facilities In place with the Lender, which as at the date of the appointments totalled approximately £177m per Appendix 3.
The debt was secured by a fixed and floating charge debenture with cross guarantees in place with Entertainment Right Plc’s main operating subsidiaries.
3.2 Marketing of the Entertainment Rights Plc’s Business
A formal sale of business process was run by Close Brothers during December 2008 and January 2009. Thirty-eight parties in total had expressed Interest In Entertainment Rights Plc by December 2008.
The interested parties were subsequently invited to submit proposals to Close Brothers by mid January 2009 following a due diligence period granted to the interested parties. No member of the Group or management was allowed to participate in the sale process to avoid any conflict of Interest.
A total of eight proposals were submitted to Close Brothers, all of which included further due diligence requirements and all of which implied current business value at significantly below the bank debt of the Group with substantial write-down of the bank debt required.
At the Lenders request, Close Brothers continued the sale process to obtain best and final offers from bidders with a final deadline for bids of 20 February 2009. As at that date two final offers had been received by Close Brothers from Saban Capital Group Inc and Boomerang which were progressed.
3.3 The Offer
Boomerang’s offer was conditional upon the transaction being executed by an Administrator of the Companies following an Administration appointment.
The consideration offered by Boomerang for the purchase of the Companies’ business and assets comprised of £36m in cash and adoption of £24m existing secured bank debt; total value of consideration being £60m.
Whilst the offer made by Boomerang was not sufficient to provide funds for the unsecured creditors of Entertainment Rights Plc it was significantly better than
the other offers received as a result of the marketing exercise conducted. The consideration was also considered to be substantially greater than the estimated realisable value achievable for the Group’s assets in a full insolvency of the Group, There are no third party creditors of Entertainment Rights Overseas Holdings Ltd.
Consequently, a sale and purchase agreement was negotiated with Boomerang and a sale of the Companies’ 100% shareholding in subsidiaries was completed shortly after the Companies were placed into Administration on 1 April 2009. The sale contract also included a provision whereby, should Boomerang dispose of all or any or the purchased shares within nine (9) months of the completion date they will be required to notify the Administrators in writing and will also be required to remit a percentage of the excess received for the shares to the Administrators.
As the Companies’ business and assets were sold upon appointment’ of Administrators, there’ are no operational matters to be addressed by the Administrators.
3.4 The Directors’ Statements of Affairs and Estimated Outcome for the Creditors
The Directors have submitted a Statement of Affairs of the Companies as at 1 April 2009, a copy of which is summarised at Appendix 2.
The Statement of Affairs is a summary of the Companies’ assets and liabilities at the date of the Administration, prior to the sale of the Companies’ assets.
The Statement of Affairs includes two distinct classes of creditors, as follows:
Secured creditors: the Companies’ secured creditor Is the Lender. The secured creditor holds a fixed and floating charge debenture security over the Companies which is paid In priority to other creditors.
Unsecured creditors: The unsecured creditors rank behind the secured creditors and only when the secured creditors are paid in full could the unsecured creditors reasonably expect to receive a dividend distribution, but there will be no further distribution given there are no further assets to realise.
The Administrators are not aware of any preferential creditors. Preferential creditors relate to employee wages arrears, holiday pay and certain pension contributions, and are in paid In priority to unsecured creditors out of net floating charge realisations.
Details of Entertainment Rights Plc’s creditors are included in Appendix 3.
3.5 Administrators’ Comments on the Directors Statement of Affairs
The Statement of Affairs Indicates that there will be no funds available for Entertainment Rights Plc’s unsecured creditors. As previously stated,
Entertainment Rights Overseas Holdings Ltd does not have any third party unsecured creditors,
Entertainment Rights Pie’s fixed charge assets comprise of its investments In subsidiaries, cash and tangible assets.
The directors have attributed no realisable value to the floating charge assets comprised of a trade debtor.
The trade debtor relates to an amount due from a former finance director. Whilst the Administrators are attempting to recover this amount, Entertainment Rights Plc had previously Instructed lawyers to pursue the amount due and had not been successful.
4 ADMINISTRATORS FEES AND EXPENSES
4.1 Administrators Fees
As there will be no funds available to the unsecured creditors fixing of the Administrators’ remuneration will be approved in accordance with Rule 21D6(SA) of the Rules, which is outlined below:
• Where the Administrators have made a statement under paragraph 52(1)(b), and in the absence of a creditors’ committee, the Administrators’ remuneration may be fixed by approval of each secured creditor.
Pursuant to Paragraph 52(1) (b) of Schedule B1 of the Act outlined above there is no requirement for unsecured creditors to pass a resolution in respect of the Joint Administrators’ remuneration.
The Administrators have sought approval to draw remuneration, on a time cost basis In respect of their costs from the Lender. The amount approved by the Lender will be deducted from the assets of Entertainment Rights Plc held back from distribution to the Lender for the satisfaction of costs of the Administration.
4.2 Administrators’ Expenses
The Administrators have not Incurred any direct expenses to date.
5 OTHER INFORMATION TO ASSIST CREDITORS
5.1 Directors’ reporting
The Administrators will be reviewing the conduct of all persons that were directors of the Companies (including those that, in the view of the Administrators, were shadow or de facto directors) in the three years preceding the date of administration.
The Administrators are required to submit reports to the Department of Business, Enterprise and Regulatory Reform within six months of the date of Administration, the content of which are confidential and cannot be disclosed to creditors.
• Statutory compliance Issues As part of their review the Administrators will typically include, among other matters, the following:
• Misfeasance or breach of duty
• Transactions at an undervalue
• Preferences
If creditors wish to draw any matters to the attention of the Administrators they should send written details to the Administrators at the address on the front of this report.
5.2 Exit Routes from Administration
Under the Enterprise Act 2002, all Administrations automatically come to an end after one year, unless either an extension is granted by the Court or by the consent of the creditors.
Where the Administrators have been appointed by the court they must apply to the Court to bring the Administration to an end when the purpose has been sufficiently achieved, or a creditors’ meeting requires them to do so, or they believe that the purpose cannot be achieved,
The Act and Rules provide a variety of options regarding the possible exit routes of a company from Administration, including a Company Voluntary Arrangement, Liquidation or Dissolution of the company.
It is the Joint Administrators’ recommendation and proposal, as detailed below, that the Administration be concluded and the relevant company be dissolved under Paragraph 84 of Schedule 61 of the Insolvency Act 1986.
5.3 Prescribed Part
The Prescribed Part (Section 176A of the Act and the Insolvency Act 1986 (Prescribed Part) Order2003) applies where there are floating charge realisations, net of costs, to be set aside for unsecured creditors and where the security was granted after 15 September 2003.
The Prescribed Part is calculated as 50% of the first £10,000 of floating charge realisations and 20% of the remainder, up to a total of £600,000.
In this particular instance, there are unlikely to be floating charge realisations available to the Administration and on this basis the Prescribed Part does not apply.
5.4 Connected Party Transactions
The Administrators are not aware of any connected party transactions which have not been carried out on an arm’s length basis. Should creditors have information regarding any such transactions they should forward details in writing to the Joint Administrators.
5.5 EC Regulations
As stated In the Administration Order in relation to the Company Council Regulation (EU) No 1346/2000 applies and these are the main proceedings as defined in Article 3(1) of that Regulation
6 STATEMENT OF PROPOSALS PURSUANT TO PARAGRAPH 49 OF SCHEDULE B1 OF THE INSOLVENCY ACT 1986
In accordance with paragraph 49 of Schedule B1 of the Act the Joint Administrators make the following proposals for achieving the purpose of the Administration:
Formal Proposals — the Joint Administrators propose that:
1. they continue with their enquiries into the conduct of the directors of the companies and continue to assist any regulatory authorities with their Investigations Into the affairs of the Companies (to the extent required by law Or other regulatory rules); and
2. they be authorised to agree the claims of the secured and preferential creditors (should any exist) unless the joint Administrators conclude, in their reasonable opinion, that a company will have no assets available for distribution to that class of creditor; and
3. if creditors of the Companies so determine, at a meeting of creditors, appoint a creditors’ committee to assist the Joint Administrators (such committee must comprise of between 3 and 5 creditors); and
4. in the absence of a creditors’ committee, the secured and preferential creditors (to the extent they exist) of the Companies shall be asked to agree that the Joint Administrators be discharged from liability per Paragraph 98 of Schedule 31 of the Act, Immediately upon the Joint Administrators’ filing their final report to creditors; and
5. if the Joint Administrators believe it to be appropriate for the Companies, they exit the Administration by way of dissolving either or both Companies under Paragraph 84 of Schedule B1 of the Insolvency Act 1986
Joint Administrators
N G Edwards & C M Siddle
Deloitte LLP
66 Shoe Lane
London
EC4A 35Q
Appendix 1
Entertainment Rights Plc
(IN ADMINISTRATION)
STATUTORY INFORMATION
Company name Entertainment Rights Plc
Company number 02402919
Date of incorporation 11 July 1989
Registered office Deloitte LLP
Hill House
1 Little New Street
London
EC4A 3TR
Business address Colet Court
100 Hammersmith Road
London
W6 7JP
Ordinary issued and called up share capital 733,302,563 ordinary shares at 5p Each
Directors Edward Knighton
Deborah Dugan
Richard Brooke
Craig Hemmings
Sir Robin Miller
Company secretary Paul Ashworth
Bankers Bank of Scotland Plc
Auditors KPMG LLP
Appendix 2
Entertainment Rights Overseas Holdings Ltd
(IN ADMINISTRATION)
STATUTORY INFORMATION
Company name Entertainment Rights Overseas Holdings Ltd
Company number 06457718
Date of Incorporation 19 December 2007
Registered office Deloltte LLP
Hill House
1 Little New Street
London
EC4A 3TR
Business address Colet Court
100 Hammersmith Road
London
W6 7JP
Ordinary issued and called up share capital 255,676,234 £1 ordinary shares
Directors Edward Knighton
Paul Ashworth
Company secretary Paul Ashworth
Bankers Bank of Scotland plc
Auditors n/a
