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Can anyone explain this to me? If offered a deal that would keep a company solvent, even if it’s not what they want, why would the directors/majority shareholders reject it & choose to go into administration?
Obviously this has happened recently with Debenhams. I can sort of understand it because maybe they didn’t want to give MA control, and I guess the pre-pack administration might let some stores stay open & some people keep their jobs; it’s got to seriously piss off all the shareholders though who’s investment becomes worthless. Surely the directors are shareholders too so why would they vote to make their holdings worthless? Can they somehow earn out of a liquidation another way?
It also happened recently with a small business I did a crowdsource investment with a while back. Apparently they had an offer (from a customer) to buy them out which the owner rejected. Why would he do that? All the money/time he’s put in comes to nothing, 20 people (a lot of them personal friends) lose their jobs. Could there be some kind of (dodgy) deal where he somehow profits from the insolvency?
Debenhams was explained on the radio as the investors (not shareholders) were preferential, so they would be top of the list to get their money if they went bust. If they took MA's 200 million, they would lose their preferential status, and also lose control of the Board, so having no say, or little say in their investment. I think MA's investment would be a better deal for everyone but the preferential lenders, who would surely be negotiated down, as the Company just cannot afford to pay their dues. As it is, Shareholders have lost everything, and many suppliers have also lost money on stuff they have supplied on credit.
The preferential investors are psiing them selves laughing, as they have kept the majority of their asset, and that may even grow now that they are debt free.
Mike Ashley is right when he complains about such tactics being used which shaft everyone apart from a few at the top.
Crowdsource? Has he put much into it? Have the patents and other intellectual property been kept personally, and may come to market sometime later? Maybe the offer wasnt as good as was suggested,and he would rather shut it down than see it taken over by pirates etc?
If a true Insolvency, the Owner will get pretty much nothing, unless there are enough assets to pay off creditors. That doesnt usually happen, as a business in a decent position can usually be sold.
(however, 2 shops near me have shut recently, due to no buyers. They were both profitable for the original owner, but, if you buy the shop, you need to pay the purchase price from the same takings, so a new owner would struggle to make any money, hence no-one would even make an offer on them)
I'm shockingly naive here, but....
How can there be shareholders AND investors? Aren't the latter also the former? And what are the former doing if not investing?
Probably better to talk of shareholders and lenders.
The reason many businesses go bust is cash flow and their inability to generate enough cash to service their 'debt' i.e. interest on any loans / plus pay creditors. Lenders generally have first preference over shareholders and other debtors e.g. suppliers so they'll often seek to 'liquidate' the business first to get their money back and let the others shoulder the debt / shortfall. Ashley's typical MO is to buy liquidated businesses at the lowest rate but the shoes now on the other foot - he's pi$$ed with Debenhams because whilst he's a lender, he'll probably not get back what he's put in - he wanted to refinance the business so he got first dibs on the debt, but the board and other shareholders have stopped him.
It’s called ‘rolling’ your company
It’s pretty simple.
You put your company into receivership with a ‘friendly’ accountants, you write off the debts, keep the assets, then you set up another company to buy the assets and you’re back in the game
The fact that this is remotely legal tells you everything you need to know about this shitty god-forsaken ****ry
Ashley’s typical MO is to buy liquidated businesses at the lowest rate but the shoes now on the other foot – he’s pi$$ed with Debenhams because whilst he’s a lender, he’ll probably not get back what he’s put in – he wanted to refinance the business so he got first dibs on the debt, but the board and other shareholders have stopped him.
MA was a shareholder, not a lender. His deal required that the lenders to the business wrote off a big pile of debt before he put his money in. It was the lenders who (unsurprisingly) said no, not the shareholders, as I understand it. I don't think the shareholder or the Board were in a position to do much without the lender agreement. MA is crying because he didn't get his own way. Boo Hoo.