SCM Pharma Limited in Administration High Court of Justice, … · 2015. 8. 19. · SCM Pharma Limited – in Administration High Court of Justice, Chancery Division Newcastle Upon

SCM Pharma Limited – in Administration High Court of Justice, Chancery Division

Newcastle Upon Tyne District Registry Case No. 631 of 2014

Joint Administrators’ progress report for the period from 6 August 2014 to 5 February 2015

4 March 2015

PricewaterhouseCoopers LLP Benson House

33 Wellington Street Leeds

LS1 4JP

Telephone: +44(0)113 289 4645 Facsimile +44(0) 113 289 4460

www.pwc.co.uk/scmpharma

When telephoning please ask for Smeet Shah

Contents _________________________________________________________

Section Pages

1 Joint Administrators’ progress report for the period from 6 August 2014 to 5 February 2015

2 - 6

2 Statutory and other information 7

3 Receipts and payments account for the period 6 August 2014 to 5 February 2015

8

4 Statement of expenses incurred from 6 August 2014 to 5 February 2015 9

5 Analysis of Administrators’ remuneration and Category 2 disbursements for the period 6 August 2014 to 5 February 2015

10 - 13

6 Pre-appointment costs 14

______________________________________________________________________ Abbreviations used in this report: “the Company”- SCM Pharma Limited

“the Joint Administrators” – Andrew Ross and Toby Underwood

“Sch.B1 IA86” – Schedule B1 of the Insolvency Act 1986

“IR86” – Insolvency Rules 1986

“SAUKL” – Shire Acquisitions UK Limited

“Provensis” – Provensis Limited

“ViroPharma”- ViroPharma SPRL

“Shire” – Shire Plc

“MHRA” - Medicines and Healthcare products Regulatory Agency

“Lloyds” – Lloyds Bank PLC

“SPG” – Shire Pharmaceuticals Group

“Newburn” - The manufacturing facility at Newburn, Newcastle upon Tyne

“Prudhoe”- The manufacturing facility at Prudhoe, Northumberland

1. Joint Administrators’ progress report for the period from 6 August 2014 to 5 February 2015

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SCM Pharma Limited – in Administration Joint Administrators’ first progress report for the period from 6 August 2014 to 5 February 2015

2

Introduction

In accordance with Rule 2.47 of the Insolvency Rules 1986 (“IR86”), we write to provide creditors with details of the progress of the Administration of SCM Pharma Limited (“the Company”) in the six months since our appointment on 6 August 2014.

We are required to provide certain statutory information pursuant to Rule 2.47(1)(a) to (d) IR86, which is included in Section 2.

At this time we are unable to provide a reliable estimate of the likely dividend to creditors as there are material uncertainties regarding future net realisations and the final level of creditor claims. These matters are discussed below.

Background information and initial actions taken by the Administrators

As at the date of our appointment on 6 August 2014, the position as regards the Company was as follows:

The Company was established for the purpose of manufacturing licensed drugs, primarily the manufacture of Buccolam for ViroPharma SPRL (“ViroPharma”). It operated from two sites in the north east of England, at Prudhoe and Newburn.

Key issues facing the Company were as follows:-

- In 2012, the Company struggled with production complexities;

- Consequently, trading losses and working capital demands required additional investment from chargeholders and shareholders;

- Following an inspection in March 2014, the Prudhoe facility was voluntarily closed and production of Buccolam ceased due to risk of cross contamination; and

- This cessation of production resulted in significant losses in the six months to June 2014.

Our appointment arose as a consequence of the above matters and the Company not being able to trade within its existing overdraft facility beyond July 2014. No other source of funding could be obtained. Hence, the directors of the Company decided to appoint administrators on the 6 August 2014.

Sale of business and assets Shortly after our appointment, the Company’s business and assets were sold via two separate transactions to Shire Acquisitions UK Limited (“SAUKL”) and Provensis Limited (“Provensis”). Full details of the sale transactions were provided in our initial letter to creditors dated 8 August 2014 and our proposals dated 5 September 2014. Copies of this information are still available on the website www.pwc.com/scmpharma. The Company’s book debts and a legal claim were excluded from the sale. Further details on these matters are provided below. The total amount of consideration for the sale of the Company’s assets was £6.681m and this amount was allocated between the two transactions as detailed below:

http://www.pwc.com/scmpharma


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3

Realisation of other assets

Book debts We have been pursuing the remaining outstanding book debts. The Company’s sales ledger showed six debtors owing a total of approximately £120k at the date of Administration. Out of this 90% related to one debt where there was a significant contractual counterclaim. To date, we have been able to recover a total of £4,877. For the purpose of calculating the estimated funds available under the prescribed part or the floating charge, we have not included any further realisations from this source. Any additional realisations will affect the floating charge realisations and thus prescribed part available.

Leasehold property As part of the sale of business, licences to occupy both the Prudhoe and Newburn sites were granted to the purchasers to allow sufficient time to agree a formal assignment of the leases with the landlords. During the period covered by this report, the reassignment of both leases to the respective purchasers has been completed. The purchasers have put us in funds to enable us to pay rent that fell due and a reconciliation is being carried out. We estimate an amount of approximately £6k is to be returned to the purchasers.

Claim for faulty machinery

We understand that prior to entering Administration, the Company was pursuing a claim against Howorth Air Technology Limited ("Howorth") for faulty equipment. The equipment was ordered to service a contract with Britannia Pharmaceuticals. The Company had paid funds of £363k to Howorth for this equipment in August 2011. Major delays and issues with the machines’ specifications led to Britannia Pharmaceuticals cancelling the contract. Prior to our appointment the Company were pursuing a claim against Howorth for breach of agreement. We are currently negotiating with Howorth in an attempt to reach a settlement in this regard.


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4

The fulfilment of our statutory duties

VAT / corporation tax

The Company is registered for VAT and we continue to prepare and submit quarterly returns. The tax returns for the post-appointment periods ending 6 August 2014, 31 December 2014 and 31 December 2015 have been prepared and submitted to HMRC. We have requested clearance from HMRC that the returns have been agreed and there is no outstanding liability or other matter, preventing the closure of the case.

Company Directors Disqualification Act We have a duty to review the conduct of everyone who has acted as a director of the Company and report to the Department of Business, Innovation and Skills on our findings. We can confirm that we have compiled with this requirement, however for confidentiality reasons we cannot give any further information. All other statutory matters have been completed on an ongoing basis.

Approval of the Administrators’ proposals On 5 September 2014 we circulated to creditors our proposals for achieving the purpose of administration. We stated in our proposals that we had formed the view that the Company has insufficient property to enable a distribution to be made to unsecured creditors other than by virtue of the prescribed part to be set aside in accordance with Section 176A of the Insolvency Act 1986 (“IA86”). Our proposals were deemed approved in accordance with Rule 2.33(5), a meeting of creditors not having been requisitioned by creditors in the prescribed manner. Receipts and payments account An account of the receipts and payments in the Administration for the period from 6 August 2014 to 5 February 2015 is set out in Section 3. Expenses statement A statement of the expenses incurred by the Administrators in the period 6 August 2014 to 5 February 2015 is included at Section 4. The statement excludes any potential tax liabilities that may be payable as an expense of the Administration in due course because amounts due will depend on the position at the end of the tax accounting period. Administrators’ remuneration Our remuneration has now been agreed on a time cost basis by both secured creditors. The time cost charges incurred in the period covered by this report are £ 131,459.65. In accordance with the


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5

requirements of Statement of Insolvency Practice 9, a full analysis of the Administrators’ time costs and Category 2 disbursements for the period 6 August 2014 to 5 February 2015 is provided in Section 5. Creditors’ rights An explanatory note on the rights of creditors in relation to an administrator’s remuneration and expenses and how to request further information can be found online at: http://www.icaew.com/~/media/Files/Technical/Insolvency/creditors-guides/creditors-guide-administrators-fees-final.pdf A copy (free of charge) can be obtained by telephoning Smeet Shah on 0113 289 4645. Pre-Administration costs Information regarding the approval of the unpaid pre-Administration costs previously detailed in the Administrators’ proposals can be found at Section 6 of this report. Outcome for creditors Lloyds Bank Plc (“Lloyds”) were the first ranking floating charge holder. During the period of this report, distributions totalling of £523,915.55 have been made which has settled its debt in full. At the date of appointment, ViroPharma held fixed charges and a second ranking floating charge which secured its total lending to the Company of c. £11.42m. During the period of this report, distributions totalling £5.503m have been made to ViroPharma under its fixed charge. It is expected that ViroPharma will suffer a shortfall in its lending. We don’t think there are any preferential creditors, as all employees were transferred to SAUKL on appointment. Funds will be available for distribution to the Company’s unsecured creditors by virtue of the prescribed part in due course. The Administrators are in the process of making an application to Court for permission to formally agree claims and make a distribution in the administration. The timing of dividend is therefore subject to obtaining this Court Order. At present, we anticipate the value of the prescribed part to be approximately £185,000 and the dividend rate in the region of 10p to 20p, depending on the final number of unsecured claims agreed. Our proposals provided for the Administrators to establish in principle and at their discretion the claims of unsecured creditors if and when it became apparent that a surplus would become available for unsecured creditors. We have commenced a process of requesting outstanding claims from creditors with a view to agreeing claims in principle. This should enable an earlier payment to creditors than might otherwise be the case once the Administrators have established the most appropriate distribution mechanism. If you have not already submitted your claim, please do so using the form enclosed with this report.

http://www.icaew.com/~/media/Files/Technical/Insolvency/creditors-guides/creditors-guide-administrators-fees-final.pdf

http://www.icaew.com/~/media/Files/Technical/Insolvency/creditors-guides/creditors-guide-administrators-fees-final.pdf


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6

Exit from Administration The Administrators are considering the most appropriate strategy for bringing the Administration to an end, taking into consideration costs and tax implications. If we are successful in our application to Court, then we anticipate that once our work has been completed, we will file a notice with the Registrar of Companies to end the Administration and the Company will be dissolved 3 months later. If permission is not granted, we will place the Company into liquidation in order to make a distribution. Next report The Administrators anticipate that they will circulate their next report to creditors at the earlier of the conclusion of the Administration or in approximately six months.

Andrew Ross Joint administrator SCM Pharma Limited Andrew Ross and Toby Scott Underwood have been appointed as joint administrators of the Company to manage its affairs, business and property as its agents and without personal liability. The joint administrators are licensed in the United Kingdom to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. The joint administrators are Data Controllers of personal data as defined by the Data Protection Act 1998. PricewaterhouseCoopers LLP will act as Data Processor on their instructions. Personal data will be kept secure and processed only for matters relating to the administration.

2. Statutory and other information ___________________________________________________________


7

Court details for the administration: High Court of Justice, Chancery Division, Newcastle Upon-Tyne District Registry County Court Case: 631 of 2014

Full name: SCM Pharma Limited

Trading name: SCM Pharma Limited

Registered number: 06641808

Registered address: Benson House, 33 Wellington Street, Leeds, LS1 4JP

Company directors: Mr Mark John Edwards Mr Grant Harley

Company secretary: Mr Grant Harley

Shareholdings held by the directors and secretary:

None

Date of the administration appointment:

6 August 2014

Administrators’ names and addresses: Mr Andrew Ross, PricewaterhouseCoopers LLP, Benson House 33 Wellington Street, Leeds, LS1 4JP Mr Toby Underwood, PricewaterhouseCoopers LLP, Benson House 33 Wellington Street, Leeds LS1 4JP

Appointor’s / applicant’s name and address: The Directors of the Company, Unit 6 Regents Drive, Low Prudhoe Industrial Estate, Low Prudhoe, Northumberland NE42 6PX

Objective being pursued by the administrators:

Objective (b); achieving a better result for the Company’s creditors as a whole than would be likely if the Company were wound up (without first being in administration)

Division of the administrators’ responsibilities:

In relation to paragraph 100(2) Sch.B1 IA86, during the period for which the Company is in administration, the administrators may act jointly or severally so that all their functions, powers and duties may be executed by all or any of them

The European Regulation on Insolvency Proceedings (Council Regulation (EC) No. 1346/2000 of 29 May 2000):

The European Regulation on Insolvency Proceedings applies to this administration and the proceedings are main proceedings

Proposed end to the Administration Dissolution Estimated dividend for unsecured creditors: Current estimate: 10p-20p in £ (£0.1-£0.2)

Estimated values of the prescribed part and the Company’s net property:

£185,000 prescribed part and £911,000 net property

3. Receipts and payments account for the period 6 August 2014 to 5 February 2015

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8

Statem ent of

Affairs

6 August

2014 to 5

February

2015

T otal

Receipts

Fixed charge

Plant and machinery 2,181,7 99.00 5,628,000.00 5,628,000.00

Bank Interest 267 .63 267 .63

2,181,7 99.00 5,628,267 .63 5,628,267 .63

Pay m ents

Bank Charges (15.00) (15.00)

Distribution to Charge Holder (5,503,000.00) (5,503,000.00)

Legal Fees and Expenses (40,156.50) (40,156.50)

0.00 (5,543,17 1.50) (5,543,17 1.50)

Net Fixed Charge Realisaiton 2,181,7 99.00 85,096.13 85,096.13

Floating Charge

Receipts

Leasehold Property / Rent Deposit Deed 7 5,481.12 7 5,481.12

Plant and Machinery 840,000.00 840,000.00

Fixtures & Fittings 7 8,000.00 7 8,000.00

Stock 66,000.00 66,000.00

Book Debts 4,87 7 .40 4,87 7 .40

Bank Interest Gross 1 ,268.27 1 ,268.27

Cash in Hand 7 7 0.83 7 7 0.83

3,17 6,383.00 1,066,397 .62 1,066,397 .62

Pay m ents

Distribution to Lloy ds (523,915.55) (523,915.55)

Agent Fees (11 ,7 50.00) (11 ,7 50.00)

Agent Disbursements (295.00) (295.00)

Statuatory Advertising (7 5.82) (7 5.82)

Insurance (424.00) (424.00)

0.00 (536,460.37 ) (536,460.37 )

Net Floaring Charge Realisation 3,17 6,383.00 529,937 .25 529,937 .25

Vat Control Account 18,107 .98 18,107 .98

Net Receipts and Pay m ents 5,358,182.00 633,141.36 633,141.36

SCM Pharm a Lim ited - in Adm inistration

4. Statement of expenses incurred from 6 August 2014 to 5 February 2015

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9

The expenses incurred in the period 6 August 2014 to 5 February 2015 are as below:

Expenses incurred

Expenses paid 6

August 2014 to 5

February 2015

Expenses

outstanding as at 6

February 2015

Total Expenses as

at 6 February 2015

£ £ £

Pre-appointment agent fees 11,750.00 11,750.00

Pre-appointment agent disbursements 295.00 295.00

Pre-appointment legal fees and expenses 40,156.50 26,832.50 66,989.00

Bank charges 15.00 15.00

Statuatory advertising 75.82 75.82

Insurance 424.00 424.00

Pre-appointment administrators fees 27,179.25 27,179.25

Post-appointment administrators fees 133,454.65 133,454.65

Administrators expenses 1,653.98 1,653.98

Total 52,716.32 189,120.38 241,836.70

5. Analysis of the Administrators’ remuneration and Category 2 disbursements for the period 6 August 2014 to 5 February 2015

_________________________________________________________________________________________

SCM Pharma Limited – in Administration Joint Administrators’ first progress report for the period from 6 August 2014 to 5 February 2015 10

Case name SCM Pharma Limited - in Administration

Analysis of time costs for the period from 6 Aug 2014 to 5 Feb 2015

Aspect of assignment Partner Director

Senior

Manager Manager

Senior

Associate Associate Secretarial Total hours Time cost

Average

hourly rate

£ £

1 Strategy & Planning - 24.50 3.55 4.05 4.30 1 1 .65 - 48.05 5,695.25 1 1 8.53

2 Secured creditors - 22.00 3.30 2.60 1 4.90 - - 42.80 16,488.00 385.23

3 Trading - 0.50 - - 0.06 6.45 - 7.01 1,390.30 1 98.33

4 Assets - 5.50 1 0.80 1 .30 32.45 1 .30 - 51.35 16,252.50 31 6.50

5 Inv estigations - - 0.50 2.00 6.05 1 .30 - 9.85 2,164.50 21 9.7 5

6 Creditors - - - 2.85 44.60 9.40 5.25 62.10 12,533.25 201 .82

7 Accounting and treasury - - 1 .60 1 .50 1 9.7 0 1 0.45 - 33.25 7,290.50 21 9.26

8 Statutory and compliance - 6.7 5 26.30 1 3.7 0 1 03.00 8.65 3.00 161.40 55,772.25 345.55

9 Tax & VAT - - - 6.55 28.30 1 5.65 - 50.50 10,860.50 21 5.06

1 0 Employ ees & pensions - - - 0.90 7 .65 3.86 - 12.41 3,012.60 242.7 6

Total for the period - 59.3 46.1 35.5 261.0 68.7 8.3 478.72 131,459.65 274.61

Total 478.72 131,459.65


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11

Time charging policy

The time charged to the administration is by reference to the time spent by us in dealing with matters arising.

It is our policy to delegate tasks to appropriate members of staff. We take into account their level of experience and any specialist knowledge needed to maximise cost effectiveness. Where there are complex or important matters which need more responsibility, these are dealt with by senior staff or the administrators themselves.

Hourly rates

Set out below are the relevant maximum charge-out rates per hour worked for the grades of the Administrators’ staff actually or likely to be involved on this assignment. Time is charged by reference to actual work carried out on the assignment. There has been no allocation of any general costs or overhead costs.

Grade Charge out rate £ / hour

Partner 575 Director 480 Senior manager 415 Manager 330 Senior associate 250 Associate 160 Support staff 85

Specialist departments within the Administrators’ firm such as Tax, VAT, Property and Pensions may charge a small number of hours if and when the Administrators require their expert advice. Such specialists’ rates do vary but the figures below provide an indication of the maximum rate per hour.

Grade Charge out rate £ / hour

Partner 1130 Director 1040 Senior manager 875 Manager 630 Senior associate 465 Associate 225 Support staff 130

In common with all professional firms, the scale rates used by the Administrators may periodically arise (for example to cover annual inflationary cost increase) over the period of Administration. Any material amendments to these rates will be advised to the creditors and / or the creditors committee in the next statutory report. All staff who work on this assignment (including cashiers, support and secretarial staff) charge time directly to the assignment and are included within any analysis of time charged. Each grade of staff is allocated an hourly charge out rate which is reviewed from time to time. Work undertaken by cashiers, support and secretarial staff is charged for separately and is not included in the hourly rates charged by partners or other members of staff. Time is charged by reference to actual work carried out on the assignment in six minute units. The minimum time chargeable is three minutes (i.e. 0.05 units).


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12

Narrative of work carried out for the period 6 August 2014 to 5 February 2015

Area of work

Work undertaken in the periods includes:

Statutory and compliance

Preparing and sending initial notices of appointment

Requesting and filing statement of affairs

Preparing and circulating proposals to creditors

Arranging appointment taker bonding

Handling books and records and arranging storage

Finalising SIP 16 documents

Obtaining first day information

Creditors

Creditor enquiries in relation to appointment

Enquiries in relation to distribution of the prescribed part and statement of claims form

Assets

Understanding the two business sales

Book debt realisation

Arranging the assignment of two leases

Retention of title claims

Assessing and pursuing legal claim

Tax/VAT/Pensions

Notifying HMRC of appointment for both corporation tax and VAT

Completing VAT 769 form

Gathering VAT and tax information

Instructing internal VAT and tax specialists

Preparing post appointment returns

Strategy & Planning

Budget and cost monitoring

Meetings and internal conference calls to agree ongoing strategy

Appointee and manager reviews

Secured Creditors

Liaising with secured creditors

Reports to secured creditors

Agree and paying distribution

Preparing Estimated Outcome Statement


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13

Disbursements Our firm’s expenses policy allows for all properly incurred expenses to be recharged to the case (excluding VAT) as set out in the tables below, covering the period of this report.

Category 2 disbursements for the period 6 August 2014 to 5 February 2015 There is no statutory requirement for the Administrators to seek approval to draw expenses or disbursements. However, professional guidance issued to insolvency practitioners requires that, where the Administrators propose to recover costs which, whilst being in the nature of expenses or disbursements, may include an element of shared or allocated costs (such as room hire, document storage or communication facilities provided by the Administrators’ own firm), they must be disclosed and be authorised by those responsible for approving their remuneration. Such expenses are known as “Category 2” disbursements and they must be directly incurred on the case and subject to a reasonable method of calculation and allocation. The Administrators’ expenses policy allows for all properly incurred expenses to be recharged to the case. Category 2 disbursements are likely to only comprise printing for circulars to creditors and exceptional amounts of copying. Category 2 disbursements in the period under review comprise of £180.53 relating to printing.

The Administrators have no business or personal relationships with parties responsible for approving remuneration or who provide services to the Administrators in respect of the appointment where the relationship could give rise to a conflict of interest.

Summary of legal and other professional firms instructed in the period 6 August 2014 to 5 February 2015

Service provided Name of firm /

organisation

Reason selected Basis of fees

Legal advice Bond Dickinson Legal knowledge Time costs

Agent GVA Grimley Limited Industry knowledge Fixed fee

Agent Johnson Tucker Industry knowledge Fixed fee

Insurer Willis Limited Industry knowledge Fixed fee

Cateogry Policy Costs

1 All disbursements not falling under category 2 are recharged at cost £180.53

2Photocopying is charged at 5 pence per sheet copies - only charged

for circulars to creditors and other bulk copying£1,47 3.45

2Mileage is charged at a maximum of 7 1 pence per mile (upto

2,000cc) or 93 pence per mile (over 2,000cc)-

T otal to 5 February 2015 £1,653.98

6. Pre-appointment costs _________________________________________________________


14

The following unpaid costs which were incurred prior to the appointment of the Administrators, but with a view to the Company entering Administration were approved for payment as an expense of the administration on 6 January 2015.

The total costs outstanding at the date appointment on 6 August 2014 were £106,369.75 out of which £52,201.50 has already been paid during the period of the report. The outstanding payment of £54,168.25 will be paid in due course during the Administration. Bond Dickinson have now been paid in full with the balance being paid on 10 February 2015.

Pre-adm inistration

costs pay able as an

expense

Paid am ount as at 5

Feb 15

Expesnses y et to

be paid

Fees charged by the Administrators £27 ,17 9.25 - £27 ,17 9.25

Expenses incurred by the Administrators - - -

Fees charged by third parties instructed by the

Administrators (Net)

- BondDickinson LLP £66,989.00 £40,000.00 £26,989.00

- GVA Grimley Ltd £11,400.00 £11,400.00 -

- Johnson Tucker £350.00 £350.00 -

Expenses incurred by third parties instructed

by the Administrators (Net)

- GVA Grimley Ltd £295.00 £295.00 -

- BondDickinson LLP £156.50 £156.50 -

T otal £106,369.7 5 £52,201.50 £54,168.25

Documents

SCM Pharma Limited in Administration High Court of Justice, … · 2015. 8. 19. · SCM Pharma Limited – in Administration High Court of Justice, Chancery Division Newcastle Upon