Gone South Limited operated a number of bars in the Leeds and Harrogate areas. It had always been profitable apart from the two years when hospitality was heavily impacted by the Covid-19 pandemic.
The company managed to improve its performance post pandemic but unfortunately a number of connected companies entered administration in early 2024. This resulted in the company’s bank putting it on notice of the intention to enforce a cross-company guarantee, leaving Gone South Ltd unable to meet its debt repayment obligations.
The company was diligent in producing monthly management accounts that were reviewed by senior management and individual bar managers. Despite the significant cashflow problems, due to the collapse of the connected companies, the directors of Gone South Ltd believed that the core business was viable. The directors made the decision to sell the company’s business, assets and its properties, to the extent that there was any value in the leaseholds, to another connected company in order to continue trading and to save employees’ jobs. The consideration was based on independent professional valuation advice that they received.
When Mike Kienlen and Daryl Warwick were appointed as joint liquidators one of their first jobs was to examine the pre-liquidation sale, to ensure that it was at a fair value and had been carried out in the best interest of the company’s creditors. To this end a copy of the sale agreement was obtained. Two sets of valuers were engaged, one to appraise the sale of the leaseholds, and another to examine the sale of the assets.
The agents concluded that there were no premiums attached to the leaseholds and that the assets were sold at a fair value. However the agents felt that there was a value in the goodwill of the company. As only £1 had been paid for the goodwill, an additional payment was negotiated with the directors by the liquidators.
There is a growing trend of directors selling company assets prior to liquidation and this case illustrates the commercial awareness of the insolvency practitioners at Armstrong Watson. They understood the intentions of the directors but were diligent in ensuring that a fair value was obtained for the company’s assets, for the benefit of its creditors.