A Little Magic For An Old Lady

A private but quasi-professional lender, now of some age lent money to an ostensibly successful property developer whom she knew personally. He became balance sheet insolvent as did all of his companies which were liquidated.

Our lady was adamant that she had lent the money to the gentleman himself. Unfortunately, the paperwork indicated otherwise, it showed a loan to a foreign company (“Company A”). When investigated, Company A had registered charges exceeding its asset value by £10m and its only assets were being sold off by its bankers who were secured over them.

The erstwhile property developer claimed financial difficulties of a very extensive nature, which turned out to be all too true.

Our original lender had obtained judgments but in the wrong country and in the names of third-party agents who had previously been assisting her, so on the face of it, a hopeless situation.

We proceeded as follows:

• We obtained the cooperation of the third-party agents (by then under investigation for embezzlement);
• We exported the judgments to the country where the assets and the foreign company were;
• We valued the assets and, at one stage, made an offer for same;
• We forensically examined the books of the companies as far as we were able to access same;
• We took a careful look at the Register of Charges.

Now we had some leverage over the erstwhile property developer. Even if we accepted that the original lender lent money to Company A and not the person, the company had been run in such a fashion as to make it impossible for her to recover any monies as the owner had preferred himself and his bankers over our lady.

Armed with leverage in the shape of rights of action against the erstwhile property developer and his wife he was persuaded to part with his last asset.

The position of Company A was one of hopeless insolvency, its assets were encumbered for sums far exceeding the value of the assets.

There were three mortgages: Charge 1 was to the bank; Charge 2 was the remaining asset of the erstwhile property developer. He owned Company B which had actually put cash in and then secured itself over the assets of Company A.

Charge 3 was for a very large amount of money, to a Bank relative to some other transactions which the erstwhile property developer had been involved.in.

We managed to obtain a mortgage statement for Charge 1 which was for quite a small amount. Indeed, we could see that on the sale of the remaining assets payment would have to be made against Charge 2 owned by Company B, owned by the Debtor in his own right.

We then entered into an agreement pursuant to which we did not acquire Company B (acquiring companies from insolvent property developers is risky), what we did instead was to acquire the loan capital in the company which did belong to the erstwhile property developer, and we acquired simultaneously, the charge over the assets which it had.

We then approached the Bank and pointed out that they were in the process of selling the assets, but they were only entitled to what was then due on Charge 1. In other words, we would get some money on sale.

The Bank resisted this notion quite forcibly, so we threatened to hold the lawyers responsible for the sale personally liable if they parted with the monies, they ignored us and to add insult to injury when we took issue, the Bank said that they had tacked on some other mythical financial transactions in the millions to Charge 1.

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