enters its fifth month, Leasing Life uncovers the events
surrounding one of the murkier stories in asset finance
Go deeper with GlobalData
Bad news comes in threes, so the saying goes. This certainly is
the case for leasing companies faced with huge debts as a result of
lessee failures. First came the £70m liquidation of trailer rental
firm Transrent mid-way through 2007, with the collapse of plant
company Thornycroft 1862 hard on its heels. Both sparked large
creditor claims from lessors. Then, in late November last year,
came the news that Global Engineering Plastics Products (Global
EPP), the plastics moving manufacturer, had entered
administration.
The news could not have come at a worse time as asset finance
companies faced up to the consequences of the liquidity crisis that
had already scalped one company, the Merrill Lynch-backed, One
World Leasing.
Today, things still look bleak for the 51 leasing companies – a
mix of captives, independent lessors, and UK and foreign banks –
which are creditors of Global EPP with the construction lessee,
formerly known as Nylacast, collectively owing the lessors over
£70m.
The worst hit has been Bank of Ireland, which is owed £6.7m by
Global EPP. Poignantly, its UK leasing arm closed down last month.
It is understood that it may have to write-off a large proportion
of this debt. Landsbanki Commercial Finance is the second highest
creditor of Global EPP with debts totalling £6.4m.
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By GlobalDataLast month it emerged that police are investigating allegations
of fraud against Global EPP. They, as well as the creditors’
lawyers, are looking into whether Global EPP multi-financed the
leased assets.
Chances of lessors recovering their assets are slim. Insurance
policies do not cover these types of losses, and proving title to
goods looks unlikely. Furthermore, so far only around £12m of
assets have been recovered from Global EPP, a shortfall of some
£60m. There appear to be more finance agreements than assets, and
some assets are believed to have been shipped overseas.
Meanwhile, lawyers’ fees are racking up. DLA Piper has been
appointed by the general body of leasing creditors to coordinate
creditor issues – including negotiating any forthcoming
settlements. Taylor Wessing has been appointed to act on behalf of
the administrators, PricewaterhouseCoopers, and several other top
UK firms are also engaged.
The victims
A host of major international players have been affected by the
fiasco. CSI Leasing, the largest IT lessor in the United States,
appears on the creditor’s list as being owed £216,736. However, it
is uncertain whether it faces all these losses itself, or whether
Bank of America, which re-financed some of CSI’s deals with Global
EPP, has the risk. KBC Lease UK reported that it experienced
exposure to fraud from Global EPP with one “very small
transaction”.
Furthermore, HSBC Asset Finance was a creditor, “albeit a small
one”, according to its head Derren Sanders. Sanders said the
“expected layout is 15p in the pound” for each lessor.
“This was a highly sophisticated fraud that has damaged a lot of
people. Given the amount of entities involved you could argue we
should all known better,” Sanders said.
He added that he was “waiting for legal proceedings to start”
and as yet had not instructed external solicitors, although he was
working with the administrators.
Police inquiry
A key problem creditors face is that many of their assets were
allegedly subject to multiple financings by Global EPP – a claim
currently being investigated by police. Global EPP allegedly
received several finance agreements for each piece of leased
equipment. The lessee originally owned the goods and then subjected
them to multiple sale and leasebacks with a number of leasing
companies.
Two employees of Global EPP, aged between 40 and 56, were
arrested by Leicestershire police on March 14 in connection with
the investigation, and face allegations that they gained “finance
from specialist lenders using the company’s machinery for
security”, according to a police report. The two men have been
released on bail pending further enquiries.
One source said that two of its clients are liaising with
Leicester fraud squad, and have handed to police documentation
“relating to the [alleged] removal of the serial numbers on the
machines”.
Global EPP’s management allegedly removed serial numbers,
which identified lessors’ title, from the equipment, or had them
marked with false magnetic strips.This action has made it difficult
for lessors to prove title. The legal battle over ownership is
likely to rumble on for months to come.
An arbitration to resolve the issue of title and ownership is
due to take place once the sale of the assets is completed. One
source said: “Until the assets become cash, everything is in
abeyance.”
Meanwhile, Addleshaw Goddard, a law firm, is understood to be
involved in pursuing the directors of Global EPP.
Background
Global EPP was called into administration, on the grounds of
funding and cash flow problems, late in 2007 by Venture Finance, a
subsidiary of ABN AMRO, which is owed, according to the creditor’s
report, a total of £5.5m. It appointed PriceWaterhouseCoopers
accountants, Colin Haig, Matthew Hammond and Stuart Maddison, to
deal with the administration.
Venture claims to have a floating charge over Global’s EPP
assets – which means it may have a claim, over and above the
creditor lessors if they cannot prove title to their asset – to any
assets owned by Global.
This is an issue that has caused consternation between it and
the other 50 lessor creditors, which have formed a creditor
committee comprised of the five lessors most hit by the
administration.
The first flare-up took place when PwC went to the High Court
just before Christmas to register itself as Global EPP’s
administrators, and seek permission to dispose of Global EPP’s
assets.
Salans, the law firm, representing 16 leasing creditors, opposed
the application on the grounds that “the application was premature
until the administrators had found a purchaser and given the
leasing creditors sufficient information to make an informed
decision about the proposed sale”, according to Kevin Heath, a
partner at the firm.
The leasing creditors succeeded on the court application and the
issue between Venture and the lessors is planned to be resolved by
arbitration.
“Furthermore, in the absence of a potential purchase,
there was insufficient information to enable leasing creditors to
give informed consent to the proposed sale,” a source said.
The issue between Venture and the lessors is expected to be
resolved by arbitration. The court also agreed to delay the sale of
the assets.
Meanwhile, the administrators have yet to find a purchaser for
Global’s EPP business – which will include the leased assets –
which is losing money as it continues to trade.
While Venture – which declined to comment – looks as if it
has a strong claim to some of these assets – it still needs to
prove they, in fact, belong to Global EPP. This might be difficult
as Global EPP may have used a third party company to invoice the
lessors, and in doing so might have passed on title rights.
Meanwhile, the case has thrown up serious concerns about sharing
of information between lessors. Crucially, it appears in this case
lessors were not able to find out if the assets had been previously
financed. To do this requires the existence of an asset register
which, coincidentally, the Finance & Leasing Association is in
the process of setting up. Sadly, however, too late to save scores
of leasing companies from losing considerable sums of money.
In the meantime, lessors, no doubt, will continue to have to
write-off debt because of lessee
insolvencies.
Katherine Gregory and Brendan Malkin
