City Link Limited – In Administration

Joint Administrators progress report

19 January 2018

Contents

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Contents

1. Introduction ..................................................................................................................... 1

2. Summary of progress since 23 June 2017 ................................................................... 2

3. Receipts and payments account ................................................................................... 4

4. Outcome for creditors..................................................................................................... 5

5. Administrators remuneration and disbursements and payments to other professionals ................................................................................................................... 6

6. Other matters ................................................................................................................... 8

Appendix A City Link receipts and payments account from 24 December 2014 to 23 December 2017 ................................................................................................................ 9

Appendix B Summary of Joint Administrators’ time costs for the period 24 December 2014 to 23 December 2017 ......................................................................... 10

Appendix C Statement of Administrators charging policy for remuneration pursuant to Statement of Insolvency Practice No.9 .................................................................. 11

Appendix D Statement of Administrators’ charging policy for Disbursements pursuant to Statement of Insolvency Practice No.9 .................................................. 12

Appendix E Creditors right to request further information about Administrators’ remuneration or expenses, or to apply to court on the grounds that the costs are considered to be excessive. (Rules 2.48A and 2.109 of the Insolvency Act 1986) 13

Introduction

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1. Introduction

High Court of Justice, Chancery Division, Companies Court (No 9400 of 2014)

Registered office address: c/o Ernst & Young LLP, 1 Bridgewater Place, Water Lane, Leeds, LS11 5QR

We write in accordance with Rule 2.47 of the Insolvency Rules 2016, to provide the Court and creditors with a report on the progress of the Administrations. This report covers the period from 23 June 2017 to 23 December 2017 and should be read in conjunction with the Joint Administrators’ Proposals dated 17 February 2015 and the Joint Administrators’ progress reports dated 13 July 2015, 26 November 2015, 24 June 2016, 4 January 2017 and 19 July 2017.

City Link Limited entered Administration on 24 December 2014 and RH Kelly, CGJ King and T Lukic of Ernst & Young LLP, 1 Bridgewater Place, Water Lane, Leeds, LS11 5QR and No. 1 Colmore Square, Birmingham were appointed to act as Administrators. The appointment was made by BECAP 12 GP Limited acting in its capacity as general partner of BECAP12 GP LP acting in its capacity as general partner of BECAP12 Fund LP under the provisions of paragraph 14 of Schedule B1 to the Insolvency Act 1986.

On 18 April 2017 T Lukic resigned as Administrator of the Company and John Peter Sumpton was appointed on the same day. This was due to T Lukic leaving the partnership of Ernst & Young LLP.

Under the terms of the appointment, any act required or authorised to be done by the Joint Administrators can be done by any of them.

Summary of progress since 23 June 2017

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2. Summary of progress since 23 June 2017

2.1 Realisation of Assets

2.1.1 Debtors

The debtor ledger was £28.6m (net of valid claims, bad debts following insolvency and rebates), of which £28.2m has been realised to date. Collections during the period since our last report total £11,873.

There are now some very small payments being collected by instalment but no material accounts are still being pursued and no legal action is in process.

2.1.2 Legal claims

2.1.2.1 Criminal proceedings

We advised in previous reports that West Midlands Police (“WMP”) had commenced proceedings against a former employee who had defrauded City Link of £120,000. The individual was found guilty and the court made a confiscation order requiring a payment of £63,072 to be made from his available assets. The court gave three months for the payment to be made which expired on 10 June 2017. Her Majesty’s Court & Tribunal Services (“HMCTS”) are empowered to collect the money and £16,399 has been recovered and paid to the Company to date. HMCTS anticipate being able to collect a further £47,000 but are not able to estimate the timing for this as it requires assets to be realised.

As the debt relates to a criminal case we are not able to take our own action to enforce the order and must wait for the HMCTS proceedings to be finalised.

2.1.2.2 Cartel truck claim

During the period we were approached by Manolete Partners PLC (“Manolete”) who were undertaking a compensation claim on behalf of a number of parties following a price fixing prosecution of the manufacturers of trucks which City Link formerly hired.

We reviewed the claim and concluded it would take a significant amount of time and expense to pursue directly as administrators. It was also clear that the potential realisations would not be high enough to repay the secured creditors in full, meaning that Better Capital were the only creditor with a financial interest in the claim.

Therefore it was agreed with Better Capital to sell the full rights and any future proceeds of the claim to Manolete for £125,000.

We agreed to provide assistance to Manolete in gathering information required to progress the claim. They will cover all costs that are charged to the Company for this assistance so there is no net impact on creditors. We have not committed to keep the Administration open whilst this claim is progressed.

2.1.3 Other income

2.1.3.1 Bank interest

We have received interest of £593 for City Link during the period covered by this report. The funds held on account will no longer accrue interest.

Summary of progress since 23 June 2017

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2.2 Wind down of business

2.2.1 Property closure

There were two properties where we had not received final rent and service charge accounts for the period occupied during the Administration.

With a view to closing the administrations, we issued full and final settlement payments based on our calculations to the remaining landlords totalling £19,208. Property costs including utilities are now finalised at £1.2m.

2.3 Leasehold property

2.3.1 Unsecured leases

There were 57 property leases on our appointment. As noted above, these have been vacated and we have agreed surrenders with landlords for the majority of properties. During the period, a surrender has been agreed for one further lease. There are three leases where landlords have not accepted surrenders but the only ongoing costs to the Administrations are a small insurance premium for public liability cover.

2.3.2 Target guarantee

The property portfolio included seven sub-leases from Target that were subject to a guarantee from City Link secured by a first ranking debenture, limited to £5m. Following the Administration, the landlords of these properties demanded payment of ongoing lease obligations from Target, who have in turn called upon the guarantee.

Following our appointment, property agents were instructed to market these properties to find new tenants and mitigate the guarantee liability. All leases have now been assigned to new tenants. There are no ongoing costs to the Administrations under the guarantee.

Payments made under the guarantee total £2.9m and have fully discharged the claim.

2.4 Other matters

2.4.1 Extension of Administration

Pursuant to paragraph 76(2) of Schedule B1 to the Insolvency Act 1986, the Administration of City Link was extended to 23 December 2018 by a court order dated 21 December 2017.

The extension to the Administration of the Company will provide additional time for the Joint Administrators to:

- Potentially receive additional funds being pursued by authorities through criminal proceedings which may result in realisations for the Company

- Finalise tax returns following the receipt of funds which may give rise to tax liabilities

- Provide assistance to third parties in relation to legal matters being taken against the Company. This mainly relates to employee personal injury claims whereby third parties have contacted us to not close the Administration whilst court cases are being progressed.

Receipts and payments account

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3. Receipts and payments account

We enclose a receipts and payments account for the period 24 December 2014 to 23 December 2017 for City Link at Appendix A.

Please note, these accounts do not reflect estimated future realisations or associated costs.

Outcome for creditors

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4. Outcome for creditors

4.1 Secured creditors

4.1.1 Target

Target, as first ranking secured creditor, have been paid £2.9m and are now paid in full under their guaranteed lease liabilities.

4.1.2 Lloyds

Lloyds have a second ranking debenture containing a fixed and floating charge. There are no outstanding liabilities to Lloyds and we therefore do not anticipate any distributions to Lloyds in either Administration.

4.1.3 BECAP Fund

As previously advised, the secured claim of BECAP Fund is £47.7m, owed jointly and severally by City Link and Properties. We have made on account distributions of £250,000 during the period from City Link and distributions to date total £22.7m.

There will ultimately be a shortfall to BECAP Fund.

4.2 Preferential creditors

We had previously declared and paid a dividend of 100p in the £ to preferential creditors. During the period further payments were made to preferential creditors who had not previously submitted a claim, totalling £59,375.

The total distribution to preferential creditors is £1.1m. We are not aware of any further potential creditor claims.

4.3 Non-preferential creditors

The final date of proving non-preferential claims was set on 29 September 2017. Total claims admitted for dividend were £60.6m.

A first and final dividend to non-preferential creditors of 0.74p in the £ was paid on 29 November 2017.

We do not anticipate paying a further dividend to unsecured creditors due to the substantial shortfall to the floating charge holders.

4.3.1 The Prescribed Part

Due to the anticipated shortfall to BECAP Fund, the only distribution available to unsecured creditors is the Prescribed Part. The Prescribed Part is a proportion of floating charge assets set aside for unsecured creditors pursuant to section 176A of the Insolvency Act 1986. The Prescribed Part applies to floating charges created on or after 15 September 2003.

The value of the net property in City Link resulted in the Prescribed Part being at the maximum amount of £600,000. The amount distributed to unsecured creditors, after allowing for the costs of agreeing and distributing the Prescribed Part to 1,583 creditors, was £448,000.

The Joint Administrators did not make an application to the Court under section 176A(5) of the Insolvency Act 1986 for an order to not distribute the Prescribed Part in either of the Administrations.

Administrators remuneration and disbursements and payments to other professionals

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5. Administrators remuneration and disbursements and payments to other professionals

5.1 Administrators’ remuneration

On 21 May 2015, the secured and preferential creditors approved, in accordance with the provisions of Rule 2.106(5A) of the Insolvency Rules 1986, that the Joint Administrators’ remuneration be fixed on the basis of time properly given by them and their staff in dealing with matters arising in the Administrations.

To date, the Joint Administrators have incurred time costs in City Link of c. £4.5m, against which fees of £2.9m has been drawn.

An analysis of the time spent is attached at Appendix C for each grade of staff for the various areas of work carried out to 23 December 2017, as required by the Association of Business Recovery Professionals’ Statement of Insolvency Practice No.9.

Attached at Appendix D is a statement of the Joint Administrators charging policy for remuneration.

5.2 Administrators’ disbursements

The secured and preferential creditors also approved the Joint Administrators drawing Category 2 disbursements.

Appendix E provides a statement of the Joint Administrators’ policy for charging disbursements and a breakdown of Category 1 and 2 disbursements incurred and paid to date.

5.3 Payment to other professionals

The Joint Administrators have engaged the following professional firms to assist them. They were chosen on the basis of their experience in similar assignments.

Name of firm Nature of service How contracted to be paid

LSH Asset and property advice, including valuation and sale of chattel assets.

Time cost basis or percentage of realisations achieved

Gateley LLP Legal advice in relation to properties, property leases, debt collection and extension of administration

Time cost basis

Macfarlanes LLP Advising on sale of assets to DX, preparing contract documents, ROT settlements, appointment matters and other legal advice

Time cost basis

JP Associates Debt collection Percentage of realisations achieved

CW Harwood & Co Legal assistance with the collection of book debts

Time cost basis or percentage of realisations achieved

Administrators remuneration and disbursements and payments to other professionals

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The fees paid to each of these professionals to date are included in the receipts and payments account at Appendix A and are as follows by firm:

Name of firm £

LSH 123,232

Gateley LLP 113,747

Macfarlanes LLP 143,472

JP Associates (inc legal disbursements)

649,503

CW Harwood & Co 1,350

Other matters

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6. Other matters

6.1 Future conduct of the Administrations

The Joint Administrators will continue to act in accordance with the Proposals. This work will include, inter alia:

► Collecting the remaining monies owed to the Companies;

► Finalising trading liabilities of the Administration;

► Distributing realisations to the secured creditors of the Companies;

► Dealing with statutory requirements of the Administrations.

6.2 Future reports

We will report to all creditors again in six months’ time or at the conclusion of the Administrations, whichever is sooner.

Should you have any queries, please do not hesitate to contact my colleague Hitesh Mistry on 0113 298 2319.

Yours faithfully for the Company

C G J King Joint Administrator

Robert Hunter Kelly is licensed in the United Kingdom to act as an insolvency practitioner by The Institute of Chartered Accountants of Scotland, Charles Graham John King is licensed in the United Kingdom to act as an insolvency practitioner by The Institute of Chartered Accountants in England and Wales and John Peter Sumpton is licensed in the United Kingdom to act as an insolvency practitioner by The Association of Chartered Certified Accountants

The affairs, business and property of the Company are being managed by the Joint Administrators, Robert Hunter Kelly, Charles Graham John King and John Peter Sumpton who act as agents of the Companies and contract without personal liability.

We may collect, use, transfer, store or otherwise process (collectively, “Process”) information that can be linked to specific individuals (“Personal Data”). We may Process Personal Data in various jurisdictions in accordance with applicable law and professional regulations including (without limitation) the Data Protection Act 1998.

City Link receipts and payments account from 24 December 2014 to 23 December 2017

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Appendix A City Link receipts and payments account from 24 December 2014 to 23 December 2017

City Link Limited - In Administration Abstract of Receipts and Payments

From 24 December 2014 to 23 December 2017

Estimated to

realise as per

Directors'

Statement of

Affairs RECEIPTS

From

24/06/17 to

23/12/17

From

24/12/14 to

23/12/17

£ Trading receipts £ £

- 5,325.27

Total trading receipts - 5,325.27

Non-trading receipts

23,979,954 Book debts 11,873 28,162,802

4,533,064 Cash at date of appointment - 4,510,829

1,000,000 Intangible assets - 988,285

335,342 Plant and equipment - 698,210

400,000 Insurance refund - 510,268

Legal claim realisations 141,399 141,399

Utility refunds 448 25,252

Rates Refunds - 13,766

Bank Interest - Float 720 73,472

Motor vehicles - 333

Sundry income 941 54,323

Total non-trading receipts 155,381 35,178,940

Total Receipts 155,381 35,184,266

PAYMENTS

Trading payments

Third party courier charges - (9,197)

Total trading payments - (9,197)

Non-trading payments

Employee costs - (1,063,503)

Carriage - (183,538)

IT costs - (627,898)

Hire of equipment - (16,599)

Inducements to trade - (213,826)

Property costs (18,847) (970,086)

Insurance (361) (35,478)

Security - (80,928)

Utilities (986) (146,330)

Claims settlements - (242,624)

Debt collection costs (10,532) (839,908)

Legal fees - (200,981)

Agents fees - (123,232)

Other professional fees - (25,158)

Administrators' remuneration (62,500) (2,765,000)

Administrators' disbursements (8,947) (102,552)

Administrators' prescribed part remuneration (150,000) (150,000)

Administrators' prescribed part disbursements (2,000) (2,000)

Public notices (70) (578)

Storage (4,285) (72,007)

Sundry expenses - (6,471)

Other (2) (10,797)

Corporation tax - (9,432)

Unsecured Creditors (448,000) (448,000)

Preferential creditors 100p in the £ (59,375) (1,050,238)

Secured creditor - BECAP Fund (250,000) (22,680,252)

Secured creditor - Target - (2,924,487)

Total non-trading payments (1,015,904) (34,991,903)

Total Payments (1,015,904) (35,001,100)

Balances in Hand (860,524) 183,166

Represented by

Joint Administrators' floating charge account 152,324

VAT account 30,842

Total 183,166

Summary of Joint Administrators’ time costs for the period 24 December 2014 to 23 December 2017

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Appendix B Summary of Joint Administrators’ time costs for the period 24 December 2014 to 23 December 2017

Partner

Executive

Director Assistant Director Senior Executive Executive Analyst Support Total

Hours

Accounting and Administration 4.0 6.5 15.2 42.2 46.5 244.1 1,273.2 1,631.7

Bank & Statutory Reporting 73.0 89.5 153.4 61.0 86.5 29.3 - 492.7

Creditors 4.8 70.9 152.1 34.3 576.4 1,808.3 6.3 2,653.1

Day 1 Visits - 9.5 64.5 104.1 263.9 189.4 - 631.4

Debtors 49.7 55.7 997.3 960.5 668.4 90.7 - 2,822.3

Employee Matters 14.8 51.0 648.5 24.0 1,049.2 70.5 - 1,858.0

Immediate Tasks 24.0 9.0 175.0 7.9 29.0 53.0 - 297.9

Investigation/CDDA 28.4 10.5 3.0 32.5 40.3 60.5 - 175.2

IT Support - 11.5 24.0 200.5 30.0 - - 266.0

Legal Issues 18.5 13.1 2.3 - - 3.0 - 36.9

Other Assets 2.5 4.0 168.6 7.0 15.0 522.5 - 719.6

Other Matters - - - 22.0 8.0 11.0 - 41.0

Property 11.0 98.8 73.8 2.0 527.5 22.5 - 735.6

Public Relations Issues 12.0 16.0 3.1 0.5 - - - 31.6

Retention of Title - 1.0 5.0 - 2.0 33.0 - 41.0

Sale of Business 39.5 - 196.0 108.4 - - - 343.9

Statutory Duties 0.7 3.5 11.5 3.8 57.8 106.5 - 183.8

Trading - 17.5 387.5 209.7 69.0 517.5 - 1,201.2

VAT & Taxation 1.7 6.9 37.4 17.1 37.7 89.3 - 190.1

Total Hours 284.6 474.9 3,118.2 1,837.5 3,507.2 3,851.1 1,279.5 14,353.0

Time Costs (£) 185,864.00 295,332.50 1,456,161.70 684,936.50 904,603.00 624,259.20 334,035.00 4,485,191.90

Average Hourly Rate (£) 653.1 621.9 467.0 372.8 257.9 162.1 261.1 312.5

City Link Limited - In Administration

Summary of Joint Administrators' time costs from 24 December 2014 to 23 December 2017

Statement of Administrators charging policy for remuneration pursuant to Statement of Insolvency Practice No.9

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Appendix C Statement of Administrators charging policy for remuneration pursuant to Statement of Insolvency Practice No.9

The secured and preferential creditors have determined that the Administrators’ remuneration should be fixed on the basis of time properly spent by the Administrators and their staff in attending to matters arising in the Administration.

The Administrators have engaged a manager and other staff to work on the cases. The work required is delegated to the most appropriate level of staff taking account of the nature of the work and the individual’s experience. Additional assistance is provided by accounting and treasury executives dealing with the company’s bank accounts and statutory compliance diaries. Work carried out by all staff is subject to the overall supervision of the Administrators.

All time spent by staff working directly on case-related matters is charged to a separate time code established for each case. Each member of staff has a specific hourly rate, which is subject to change over time. The average hourly rate for each category of staff over the period is shown in Appendix B, and the current hourly rates are detailed below. The current hourly rates may be higher than the average rates, if hourly rates have increased over the period covered by this report

It is our firm’s policy to review the charge out rates annually on 1 July. The current hourly rates are:

Department Grade Current hourly rate effective

July 2014

Current hourly rate effective

July 2015

Current hourly rate effective

July 2016

Current hourly rate effective

July 2017

Restructuring Partner 630 660 710 745

Executive Director

600 630 660 695

Director 600 540 565 595

Senior Manager 450 475 500 525

Manager 350 370 390 410

Executive 250 265 280 295

Analyst 140 - 205 145 - 215 150 - 225 160 - 235

Support/Intern 95 - 125 110 115 115

Tax Partner 1070 1125 1180 1240

Senior Manager 625 - 695 655 – 730 700 - 815 725 - 855

Manager 525 550 580 610

Executive 420 440 460 485

Analyst 95 - 250 100 – 265 108 - 208 110-295

A copy of the R3 (Association of Business Recovery Professionals) creditors’ guide to

Administrators’ fees may be obtained by contacting Hitesh Mistry at the above address, or at

www.r3.org.uk/media/documents/publications/professional/Guide_to_Administrators_Fees_N

ov2011.pdf

Statement of Administrators’ charging policy for Disbursements pursuant to Statement of Insolvency Practice No.9

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Appendix D Statement of Administrators’ charging policy for Disbursements pursuant to Statement of Insolvency Practice No.9

Statement of Insolvency Practice No. 9 (“SIP 9”) published by R3 (The Association of Business Recovery Professionals) divides disbursements into two categories.

Category 1 disbursements comprise payments made by the office holders’ firm, which comprise specific expenditure relating to the administration of the insolvent’s affairs and referable to payment to an independent third party. These disbursements can be paid from the insolvent’s assets without approval from the Committee. In line with SIP 9, it is our policy to disclose such disbursements drawn but not to seek approval for their payment.

To date, the Joint Administrators have incurred and been reimbursed Category 1 disbursements as follows:

Category 2 disbursements comprise payments made by the office holders’ firm which include elements of shared or overhead costs. Such disbursements are subject to approval from secured and preferential creditors as if they were remuneration. It is our policy, in line with SIP 9, to seek approval for this category of disbursement before they are drawn. Both the secured and preferential creditors have approved the Joint Administrators’ proposal that they be entitled to draw Category 2 disbursements.

To date, the Joint Administrators have incurred and been reimbursed Category 2 disbursements as follows:

Category 1 Amount (£) Reimbursement Received

Travel 11,784.50 11,784.50

Accommodation 29,517.20 29,517.20

Subsistence 9,027.23 9,027.23

Telephone 206.32 206.32

Office supplies 11,557.35 11,557.35

Postage/courier 22,396.82 22,396.82

84,489.42 84,489.42

Category 2 Amount (£) Reimbursement Received

Mileage 19,488.41 19,488.41

19,488.41 19,488.41

Total 103,977.83 103,977.83

Creditors right to request further information about Administrators’ remuneration or expenses, or to apply to court on the grounds that the costs are considered to be excessive. (Rules 2.48A and 2.109 of the Insolvency Act 1986)

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Appendix E Creditors right to request further information about Administrators’ remuneration or expenses, or to apply to court on the grounds that the costs are considered to be excessive. (Rules 2.48A and 2.109 of the Insolvency Act 1986)

Creditors’ request for further information regarding an administrators’ remuneration or expenses – Rule 2.48A, Insolvency Rules 1986

1) If-

(a) within 21 days of receipt of a progress report under Rule 2.47-

(i) a secured creditor, or

(ii) an unsecured creditor with the concurrence of at least 5% in value of the unsecured creditors (including the creditor in question), or

(b) with the permission of the court upon an application made within that period of 21 days, any unsecured creditor,

makes a request in writing to the administrator for further information about remuneration or expenses (other than pre-administration costs) set out in a statement required by Rule 2.47(1)(db) or (dc), the administrator must, within 14 days of receipt of the request, comply with paragraph (2).

(2) The administrator complies with this paragraph by either-

(a) providing all of the information asked for, or

(b) so far as the administrator considers that-

(i) the time or cost of preparation of the information would be excessive, or

(ii) disclosure of the information would be prejudicial to the conduct of the administration or might reasonably be expected to lead to violence against any person, or

(iii) the administrator is subject to an obligation of confidentiality in respect of the information, giving reasons for not providing all of the information.

(3) Any creditor, who need not be the same as the creditor who requested further information under paragraph (1), may apply to the court within 21 days of-

(a) the giving by the administrator of reasons for not providing all of the information asked for, or

(b) the expiry of the 14 days provided for in paragraph (1),

and the court may make such order as it thinks just.

(4) Without prejudice to the generality of paragraph (3), the order of the court under that paragraph may extend the period of 8 weeks provided for in Rule 2.109(1B) by such further period as the court thinks just.”.

Creditors right to request further information about Administrators’ remuneration or expenses, or to apply to court on the grounds that the costs are considered to be excessive. (Rules 2.48A and 2.109 of the Insolvency Act 1986)

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Creditors’ claim that remuneration is excessive – extract from Rule 2.109 of the Insolvency Rules 1986

“(1) Any secured creditor, or any unsecured creditor with either the concurrence of at least 10% in value of the unsecured creditors (including that creditor) or the permission of the court, may apply to the court for one or more of the orders in paragraph (4).

(1A) Application may be made on the grounds that—

(a) the remuneration charged by the administrator,

(b) the basis fixed for the administrator’s remuneration under Rule 2.106, or

(c) expenses incurred by the administrator,

is or are, in all the circumstances, excessive or, in the case of an application under sub-paragraph (b), inappropriate.

(1B) The application must, subject to any order of the court under Rule 2.48A(4), be made no later than 8 weeks after receipt by the applicant of the progress report which first reports the charging of the remuneration or the incurring of the expenses in question (“the relevant report”).