paragraph 49 of schedule b1 mid uk recycling limited ...sch b1 ia86 schedule b1 to the insolvency...

www.pwc.co.uk/midukrecycling

Mid UK Recycling Limited – in administration High Court of Justice Business and Property Courts in Leeds Insolvency & Companies List (ChD)

Case No. CR-2019-LDS-000640

Joint administrators’ proposals for achieving the purpose of administration

In accordance with paragraph 49 of Schedule B1 of the Insolvency Act 1986 and rule 3.35 of the Insolvency (England and Wales) Rules 2016

Date 19 June 2019

Anticipated to be delivered on 19 June 2019

http://www.pwc.co.uk/

Mid-UK Recycling Limited (in administration) – Joint Administrators’ proposals for achieving the purpose of administration

Contents

Abbreviations and definitions 2

Why we’ve prepared this document 4

At a glance 5

Brief history of the Company and why it’s in administration 6

What we’ve done so far and what’s next if our proposals are approved 10

Estimated financial position 14

Statutory and other information 15

Receipts and payments account 16

Appendix A: Group structure 17

Appendix B: Pre-administration costs 18

Appendix C: Copy of the Joint Administrators’ report to creditors on the pre-packaged sale of the business and all of its assets 20

Appendix D: Estimated financial position including creditors’ details 32

Mid-UK Recycling (in administration) – Joint Administrators’ proposals for achieving the purpose of administration

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The following table shows the abbreviations and insolvency terms that may be used in this document:

Abbreviation or definition Meaning

Administrators/we/us/our Michael Thomas Denny and Toby Scott Underwood

Barkston Barkston Material Recycling Facility

Beauparc Beauparc Group

BEIS Department for Business, Energy & Industrial Strategy

Caythorpe Caythorpe Material Recycling Facility

the Company/ MUK Mid-UK Recycling Limited

CYBG / Bank Clydesdale Yorkshire Banking Group, the secured creditor

the Group GPP, MCM, MUK and BTL

GPP Green Plant Products Limited

BTL Buddleia Trading Limited, a dormant company

MCM M.C. Mountain and Son Limited

HMRC HM Revenue & Customs

IA86 Insolvency Act 1986

IR16 Insolvency (England and Wales) Rules 2016

KCUK Koch Carbon (UK) Limited

NOI Notice of Intention to Appoint an Administrator

preferential creditors Primarily employee claims for unpaid wages earned in the four months

before the insolvency up to £800, holiday pay and unpaid pension

contributions in certain circumstances

prescribed part The amount set aside for unsecured creditors from floating charge

funds in accordance with section 176A IA86 and the Insolvency Act

1986 (Prescribed Part) Order 2003

the Purchaser / NESWL New Earth Solutions (West) Limited, part of the Beauparc Group

PwC PricewaterhouseCoopers LLP

RPS Redundancy Payments Service, part of the Insolvency Service, which is

an executive agency sponsored by BEIS, and which authorises and pays

Abbreviations and definitions


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the statutory claims of employees of insolvent companies under the

Employment Rights Act 1996

Sch B1 IA86 Schedule B1 to the Insolvency Act 1986

secured creditor A creditor with security in respect of their debt, in accordance with

section 248 IA86

SIP Statement of Insolvency Practice. SIPs are issued to insolvency

practitioners under procedures agreed between the insolvency

regulatory authorities. SIPs set out principles and key compliance

standards with which insolvency practitioners are required to comply.

SIP 9 Statement of Insolvency Practice 9: Payments to insolvency office holders and their associates

SIP 13 Statement of Insolvency Practice 13: Disposal of assets to connected

parties in an insolvency process

SIP 16 Statement of Insolvency Practice 16: Pre-packaged sales in

administrations

SPA The agreement for the sale and purchase of the business and assets of

the Company dated 12 June 2019

TUPE Transfer of Undertakings (Protection of Employment) Regulations

2006

unsecured creditors Creditors who are neither secured nor preferential


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On 12 June 2019, the Company went into administration and Toby Scott Underwood and I were appointed as joint administrators.

We tell you in this document why the Company was put into administration. We give you a brief history and set out our proposals for achieving the purpose of administration. We include details of the Company’s assets and liabilities, and say how likely we are to be able to pay each class of creditor.

According to IA86, the purpose of an administration is to achieve one of these objectives:

(a) rescuing the company as a going concern, or if that is not possible or if (b) would achieve a better result

for the creditors than (a)

(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), or finally, if that is not possible

(c) realising the company’s assets to pay a dividend to secured or preferential creditors.

In this case, we’re following (b) achieve a better result for creditors than would be likely if the Company were wound up (without first being in administration) as it was not reasonably practicable to rescue the Company as a going concern.

Our job is to manage the Company until creditors agree our proposals for achieving the purpose of administration and we’ve implemented them so far as possible. After that the administration will end.

The whole of this document and its appendices form our statement of proposals for achieving the purpose of administration. We’re not seeking a decision from the creditors to approve our proposals because we think the Company doesn’t have enough assets to pay a dividend to unsecured creditors other than from the prescribed part. So, our proposals will be treated as approved unless enough creditors ask us to seek a decision to approve them. This would happen if at least 10% in value of the total creditors ask us to do so (in line with rule 15.18 IR16) within eight business days of the date we deliver the proposals to you. If you’ve got any questions, please get in touch with my colleague, Harpreet Panesar, on 0113 289 4729.

Signed…………………………………

Mike Denny Joint administrator of Mid UK Recycling Limited

Michael Thomas Denny and Toby Scott Underwood have been appointed as joint administrators of Mid UK Recycling

Limited to manage its affairs, business and property as its agents without personal liability. They 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 bound by the Insolvency Code of Ethics which can be found at:

https://www.gov.uk/government/publications/insolvency-practitioner-code-of-ethics

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.

Why we’ve prepared this document

https://www.gov.uk/government/publications/insolvency-practitioner-code-of-ethics


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Pre-pack transaction of the Company’s business and assets Immediately following our appointment as joint administrators of the Company on 12 June 2019, we completed the sale of the Company’s business and assets to NESWL for total consideration of c.£8m. As detailed later in this document, the sale represented the best offer received and will help achieve the best outcome for creditors in the circumstances. The sale resulted in all 420 employees transferring to the Purchaser and the Purchaser taking on hire purchase liabilities in respect of the Company’s financed plant and machinery. The sale has therefore helped to mitigate the level of preferential and unsecured claims against the Company.

Estimated dividend prospects

Secured creditor At the date of our appointment CYBG, the secured creditor, was owed c£11.6m under a fixed and floating debenture provided to the Company, which was guaranteed by MCM. Following the sale of the Company's business and assets together with the proceeds MCM paid to the Bank from sale of the Barkston site, it is possible that sufficient realisations may be achieved to enable the secured creditor to be paid in full.

Preferential creditors All of the Company’s employees have transferred to the Purchaser under TUPE. Therefore we are not anticipating any employee preferential claims.

Unsecured creditors We do not believe there will be sufficient realisations to enable a distribution to be made to the unsecured creditors, other than from the prescribed part. This is a brief summary of the possible outcome for creditors based on what we know so far. You shouldn’t use it as the main basis of any bad debt provision or debt trading. Please read the rest of this document.

Action required by you Due to the anticipated outcome for creditors, summarised above, it is not necessary for us to seek a decision of

creditors to approve these proposals. Instead, they will be deemed approved unless sufficient creditors say

otherwise, in the manner described earlier.

In order to notify us of any claim you may have please complete and return a statement of claim form together

with supporting information. A claim form can be found at online at www.pwc.co.uk/midukrecycling

At a glance



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Background

The Company is a subsidiary of GPP, which also owns MCM and BTL. GPP also owns 54% of Fire Shield Systems Limited. A group structure is shown at Appendix A.

The Company is the trading entity within the Group, which operated a number of sites across Lincolnshire which recycled agricultural waste, carpets, commercial and industrial waste, glass, green waste and composting, inert waste, label and packaging, material recycling facility residues, paper & cardboard, plasterboard and wood. The Company also provided renewable fuels, skip hire and waste collections.

The Company traded from seven sites;

Caythorpe - MUK owned the freehold;

Barkston - MCM owned the freehold and MUK occupied the site but there was no lease in place between MUK and MCM;

Market Deeping – a waste transfer station. MUK owned the freehold;

Honey Pot Lane – a composting site which was informally occupied by MUK. There was no lease in place between MUK and the landlord;

Quarrington Haulage Yard (including engineering function) - MCM owned the freehold, but there was no lease in place between MCM and MUK;

Owmby – an ash processing facility. MUK leased the site from a third party with a formal lease in place; and

South Hykeham – a waste transfer station. This site is owned by Lincolnshire County Council (a customer of MUK), and there was no lease in place but MUK managed the site under a non-hazardous waste transfer licence and provided staff and equipment to load waste. The Council was responsible for the rent and insurance.

The Company employed 420 staff and generated revenues of £37.8m in the year ended 31 March 2018.

The circumstances leading to our appointment

Cash difficulties

Over the past 16 months, a significant capital expenditure programme, and the associated periodic cessation of production on certain lines whilst the capital expenditure programme was implemented, had reduced cash reserves and revenues.

KCUK, a US owned company that had worked with MUK to build a pellet processing plant on the Barkston site, provided a series of unsecured loans, totalling £5.8m, to fund the building of the pellet plant. Under the terms of the Company’s agreement with KCUK, KCUK was granted pre-emption rights on any sale of the Company. The building of the pellet plant completed in April 2019 and commissioning was expected to run for 3-4 months but the plant is currently mothballed.

A substantial fire at the Barkston site in September 2018 not only reduced trading revenues but also led to the write off of assets with a book value of £3.4m.

In addition, in June 2015 MUK entered into a large service contract which ran to March 2020, which was significantly loss-making, costing the business in the region of £135k per month (or £23 per tonne).

Brief history of the Company and why it’s in administration


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The overall impact of the capital expenditure, the fire and the loss making contract placed a significant strain on the Company’s cash flow and led to liquidity issues. This was exacerbated by the withdrawal of credit insurance in March 2019 and as a result, the Company was not in a position to file its annual accounts. The lack of credit insurance meant that waste off-takers (who remove the waste from site) required business critical payments to be made weekly. This in turn required the Company to generate sales and cash via the Company’s invoice discounting facility which adversely impacted the working capital of the business.

Steps taken by the Company

Given the cash constraints in late 2018 and the first quarter of 2019, the Company explored a number of alternative options to secure additional financing and cashflow support. These options included exploring additional shareholder loans and approaching alternative lenders to refinance the debt. Neither option proved successful and consequently the Company requested additional support from its bank CYBG in the form of an increase in the overdraft from £1.5m to £2.25m. MCM is a guarantor of the Company’s bank debt. Simon Mountain, a shareholder of MUK’s holding company, GPP, also injected £400k through a personal loan to help support the business.

In April 2019, the Company was approached by a large UK waste and recycling group which submitted an indicative, non-binding offer of c.£36m on a debt and cash free basis for a solvent acquisition of the business, with potential for an additional payments based on subsequent trading performance.

Upon receiving this offer, the Company updated KCUK which, under its pre-emption rights, had the opportunity to offer a higher bid for the shares. We understand that KCUK declined to make an offer but instead requested the Company also approach another waste business, Beauparc, which thereafter also submitted an offer to acquire the equity for £30m on a cash and debt free basis.

Additionally a turnaround fund was approached and put forward a solvent offer to acquire the equity for £1 with c.£6m of consideration deferred on the basis CYBG and all other providers of debt, rolled over their debt. This offer was declined by the Company.

On 11 May 2019, whilst discussions with the two interested parties were still ongoing, HMRC advised the Company that it intended to issue a winding up petition in 7 days if a £500k VAT liability which had recently fallen due was not paid.

MUK had previously entered into a number of “time to pay” arrangements and HMRC advised that no further negotiation or delay in payment was acceptable and the debt was being passed to its Debt Enforcement team.

Due to the cash constraints and the threat of impending legal action, the Board of Directors concluded that insolvency was unavoidable and filed a NOI on 16 May 2019

Sales Process

Achieving a solvent sale of the Company during the time available was highly unlikely given the immediate working capital need and the risks to a purchaser in acquiring the equity without undertaking detailed diligence. Initial discussions with the two interested parties identified that both would need significantly longer than two weeks to transact on a solvent basis. As such, an accelerated sales process was undertaken to identify interested parties who had immediate access to cash, a strong commercial rationale to acquire the business and who could purchase the business and assets of the Company through an insolvency transaction. PwC was instructed to assist the Company with this process.

PwC discussed potential acquirers internally with Waste Sector experts within the PwC Corporate Finance team who confirmed the three key trade players that should have the strongest rationale to acquire - two of whom were the parties who had already made offers to acquire the equity.

The time critical nature of the accelerated sale process meant that it was highly unlikely that any traditional private equity firm would be able to transact in the timeframe. However, PwC did approach the turnaround fund


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previously approached by the shareholders on the basis that such a party may be able to transact in the time available.

On Thursday 16 May, PwC spoke to the three trade parties and explained the circumstances and the need to transact within the extremely tight timescale. Both the parties who had previously shown interest were asked to revise and restructure their offer such that it was to purchase of business and assets and that they were able to transact in the limited timescale. The third trade party was introduced to the process and asked to provide an indicative offer for the business and assets.

It was made clear to all three parties that the Barkston site, which is a key operational site, was owned by MCM and that this asset was also available for sale.

By Friday 17 May all three trade parties had been given access to a virtual data room with historical and forecast financials, operational details, compliance and licence information, HR information and property details. The parties were asked to provide indicative offers by Monday 20 May.

One of the original parties confirmed it was too short a timeframe to transact and pulled out of the process. Beauparc confirmed its interest in acquiring all the Company’s trading assets including the Barkston site for £12m, plus a willingness to take on the outstanding hire purchase liabilities of c.£4.85m. The other trade party confirmed it only had interest in the Caythorpe site and offered £3m less the cost of clearance of all the waste on that site for that asset alone.

The turnaround fund declined to make an offer to acquire the business and assets due to the high risks associated with purchasing the properties without any formal surveys or diligence.

PwC also approached the Company’s shareholders and KCUK to ask whether they had any interest in purchasing the business and assets.

Whilst the Company looked to progress the Beauparc offer, KCUK opened discussions with the directors around providing £2m of bridge funding in order to give another interested party that could not transact in the time available, with whom KCUK was in discussions, additional time to complete its due diligence and with a view to potentially completing a transaction on a solvent basis.

Negotiations with KCUK to provide bridge funding and with Beauparc to acquire the business and assets through a pre-packaged insolvency ran in parallel until Friday 24 May when Beauparc declined to incur further costs without certainty of securing the business.

The directors prioritised securing the bridge finance from KCUK and a financing agreement was negotiated between KCUK and the Company until Thursday 30 May when KCUK withdrew its offer of funding.

PwC was then asked by the Company to re-engage with Beauparc and the interested party that had been in discussions with KCUK. Beauparc reverted, agreeing to increase its offer to £13m for all the business and assets of the Company and the Barkston site (with £12m payable at completion and £1m unconditional but deferred and payable within 11 months of completion). The offer covered all the properties, plant and machinery (including taking on all outstanding hire purchase liabilities) and MUK’s debtor ledger and it was not subject to any further diligence. On the basis that there was a reasonable prospect of securing a pre-packaged sale of the business and assets. Given that insolvency was still unavoidable, the Board resolved to file a second NOI on Friday 31 May and negotiations for the sale of the business and assets continued.

MUK received £8m of the total £13m proceeds with the remaining £5m paid to MCM for the purchase of the Barkston property. The apportionment of consideration reflected extended negotiations between the parties, with Beauparc unwilling to transact without the Barkston site forming part of the sale agreement

Before the Beauparc offer was accepted PwC reverted to the interested party that had been in discussions with KCUK. That party submitted a revised offer, however it was lower than the Beauparc offer and also subject to diligence. In addition, management took the decision to approach another trade player who was given access to the virtual data room but on Monday 3 June they confirmed they were not in a position to submit an offer.


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On 12 June 2019, Michael Denny and Toby Underwood of PwC were appointed as joint administrators of the Company and the sale of the Company’s business and asset to NESWL completed immediately thereafter.

Pre-administration costs

PwC was initially engaged by the Company and CYBG in September 2018 to review and comment on MUK’s immediate cash requirement as a result of the fire, and subsequently assisted the Company with cashflow monitoring and an initial review of refinancing.

From 13 May 2019, when it became clear that insolvency of the Company was inevitable PwC provided support in relation to contingency planning and the accelerated insolvent sale process. PwC additionally worked with the Company’s directors and their legal advisors in preparing for the administration

The pre-administration costs incurred by PwC to the time of appointment were £272,823.50 (inclusive of estimated disbursements of £5,000) plus VAT of which £127,823.50 remained unpaid at the time the Company entered administration.

Solicitors Addleshaw Goodard were engaged to provide legal services in connection with the sale process and effecting the appointment of administrators. At the date of appointment, their costs were £64,429 (inclusive of disbursements of £1,429) plus VAT, all of which remain unpaid.

Valuation agents Sanderson Weatherall LLP were engaged to provide a valuation of the Company’s plant and machinery. At the date of appointment, their cost of £23,805 plus VAT remained unpaid.

During the sale process the Company engaged Rowleys Commercial Energy Assessment Limited to provide EPC certificates and IntraLinks to provide the virtual data room. Their respective costs of £7,693 plus VAT and £4,500 plus VAT were all met by the Company prior to the appointment.

We think that PwC’s role in preparing and planning for our appointment was key to achieving the purpose of the administration. The offer which was accepted for the business was the best offer received for all the Company’s business and assets, and preserved the jobs of all its employees, who transferred to the Purchaser. In addition, the Purchaser has taken on all the Company’s hire purchase liabilities of its financed plant and machinery, and the continuity of services is likely to mitigate any claims against the Company that could otherwise have arisen from customers. If this work had not been done prior to our appointment it is likely that the following the Company being placed into an insolvency process it would have immediately ceased trading and the employees would have been redundant, due to issues obtaining insurance and the environmental and health and safety risk associated with trading the business.

More details of the pre-administration costs, including further information regarding the work undertaken, can be found at Appendix B.

To the best of our knowledge and belief, no fees or expenses were charged by any other insolvency practitioner

The payment of unpaid pre-administration costs as an expense of the administration is subject to approval under rule 3.52 IR16 and doesn’t form part of our proposals, which are subject to approval under paragraph 53 Sch B1 IA86. If you elect a creditors’ committee, it will be up to the committee to give this approval under rule 3.52 IR16. But if there’s no committee, then because we’ve said we think the Company doesn’t have enough assets to pay anything to unsecured creditors other than via the prescribed part, it will be for the secured creditors to do so instead.


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What we’ve done so far and what’s next if our proposals are approved

Management and financing of the Company’s affairs and business

Sale of the Company’s business and assets

A sale of the Company’s business and assets was completed on 12 June 2019 to NESWL, immediately following our appointment as joint administrators. The sale was formalised in two sale agreements, one being an Asset Purchase Agreement for the sale of all the trading assets of MUK via an Administration, and a separate agreement between MCM and the purchaser for the sale of its freehold of the Barkston site.

As required by SIP16 and SIP13, a detailed narrative explanation and justification of why a pre-packaged sale was undertaken and alternatives considered, is enclosed at Appendix B. In summary:

Total consideration for the sale of the Company’s business and assets was c£8m, consisting of initial consideration of c£4.3m plus deferred consideration of £1m to be paid within 11 month. Additionally, a further c£2.7m for the assignment of the Company debtor book which was subject to an invoiced discounting facility with the Bank. The deferred element was a requirement of the Purchaser and is only conditional upon the passage of time.

As part of the negotiations, it was agreed that MCM would be paid £5m by the Purchaser for the Barkston site at completion. All proceeds from the sale of the Barkston site were paid to the Bank in respect of its lending to MUK which has been secured by way of a guarantee and security granted by MCM.

For the reasons explained at Appendix B, the alternative outcome was the insolvency of the Company followed by the immediate cessation of trade and redundancy of all employees, due to issues obtaining insurance, and the environmental and health and safety risk associated with trading the business. The sale has avoided the additional significant costs of clearing the site, the continuity of trade and the purchaser taking on all the Company’s hire purchase liabilities of its financed plant, plus the continuity of services is likely to mitigate any claims that could otherwise have arisen from customers.

The sale to NESWL enables the statutory purpose of the administration to be achieved, as it represented the best offer received and has provided the best available outcome for creditors as a whole in all circumstances. It provided certainty for creditors as a whole in comparison to a shutdown scenario which had potential risks for further costs, plus the sale avoided the redundancy of all the Company’s employees and mitigated potential additional claims against the Company. A prescribed part dividend will also be available for unsecured creditors.

Properties On appointment the Company had a formal interest in one leasehold property at Owmby, but there were a further two sites where an informal agreement was in place; Honey Pot Lane which is owned by a farmer and Quarrington Haulage Yard which is owned by MCM. A licence to occupy was entered into with the Purchaser for all three properties and we received funds for rent of c£46k. We will be providing reasonable assistance to the Purchaser over the coming months with regards to the assignment or surrender of the formal leased property. In the meantime, our intention is to continue to collect licence fees as normal during this period and pay ongoing rent from the date of appointment.

Stock and retention of title


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Any supplier wishing to claim retention of title ownership to stock in the Company’s possession at the time of our appointment should contact George Hall on 07841 498 776 or at [email protected]. Statutory work we still need to do Other matters to be completed specific to the administration process, include those set out below.

We have a duty to investigate what other assets there may be (including potential claims against third parties and what recoveries can be made).

During the course of the administration, we will be winding-down the Company’s affairs, including any necessary final tax and VAT matters; and dealing with the Company’s books and records.

We must comply with all relevant insolvency legislation and regulatory obligations arising as a result of the insolvency of the Company’s and our appointment as joint administrators. These typically include periodic reports to creditors, obtaining approval for our remuneration and internal controls to ensure the administration strategies continue to be appropriate and outstanding matters are being progressed on a timely basis.

Managing the Company’s affairs and conducting the administration (including our remuneration) will be financed by asset realisations.

Connected party transactions In accordance with SIP13, we are required to disclose any known connected party transactions that occurred in the period following our appointment or any proposed connected party transactions. We can confirm that no such transactions have occurred and none are expected. Appendix B gives more information on the sale to the Purchaser.

Directors’ conduct and investigations One of our duties is to look at the actions of anybody who has been a director of the Company in the three years before our appointment. We have to submit our findings to BEIS within three months of our appointment.

We also have to decide whether any action should be taken against anyone to recover or contribute to the Company’s assets. If you think there is something we should know about and you haven’t yet told us, please complete the relevant section of the claim form that can be found online at www.pwc.co.uk/midukrecycling. This is part of our normal work and doesn’t necessarily imply any criticism of the directors’ actions.

Objective of the administration

We are pursuing objective (b) of the statutory purpose for the administration, which is to achieve a better result for the Company’s creditors as a whole than would be likely if the Company was wound up (without first being in administration).

We believe that this objective will be achieved as a result of the sale described earlier, as it provided certainty for creditors as a whole in comparison to a shutdown scenario which had potential risks for further costs, plus the sale avoided the redundancy of all the Company’s employees and mitigated potential additional claims against the Company. A prescribed part dividend will also be available for unsecured creditors.

We’ll continue to manage and finance the Company’s business, affairs and assets from asset realisations. We may also investigate and, if appropriate, pursue any claims the Company might have. We’ll also do anything else we think appropriate, to achieve the purpose of the administration or to protect and preserve the Company’s remaining assets or to maximise realisations or for any other purpose incidental to these proposals.



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Estimated outcome for creditors Secured creditors CYBG’s lending to the Company as at the date of administration was c£11.6m and is secured by fixed and floating charges over the Company’s assets, which was guaranteed by MCM. From the realisation achieved from the sale together with the proceeds MCM paid to the Bank from sale of the Barkston site, we think that it is possible that sufficient realisations may be achieved to enable CYBG to be paid in full.

From the proceeds received distributions totalling c£4.7m have been made to CYBG, in addition to the £5m it has received from MCM, as guarantor of the Bank debt, from the sale proceeds of the Barkston site.

Preferential creditors (mainly employees)

The Company’s employees have transferred to the Purchaser under TUPE therefore no preferential claims are expected to arise.

Unsecured creditors

The prescribed part is a fund that has to be made available for unsecured creditors. It’s paid out of “net property”. Net property is floating charge realisations after costs, and after paying - or setting aside enough to pay - preferential creditors in full. But it only has to be made available where the floating charge was created on or after 15 September 2003.

The amount of the prescribed part is:

● 50% of net property up to £10,000

● 20% of net property above £10,000

● subject to a maximum of £600,000.

The prescribed part applies in this case as there is a floating charge created on or after 15 September 2003.

The Company’s net property will be £3m which means the value of the prescribed part is £600,000. But we can’t yet give you a realistic estimate of the dividend that will be paid from the prescribed part because of the uncertain final level of claims from unsecured creditors. These estimates will also depend on future realisations and administration costs.

In addition to any prescribed part, we don’t think there will be any dividend for unsecured creditors based on what we know currently.

Creditors’ committee

We’re asking you to decide whether you wish to elect a creditors’ committee to help us in discharging our duties. If the creditors do wish to do so, there will be a creditors’ committee if enough creditors want to be on it. Please see the link below for a guide to creditors’ committees:

https://www.r3.org.uk/media/documents/publications/professional/Creditors_Administration.pdf

Our fees and disbursements We intend to propose that our fees be based on the time we and our staff spend on the case at our normal charge out rates for this type of work (a time cost basis). We also intend to propose that disbursements for services provided by our firm (defined as Category 2 disbursements in SIP 9) are charged as per our firm’s policy.

It will be up to the creditors’ committees to fix the basis of our fees and Category 2 disbursements. But if there is no committee, because we’ve said we think the Company doesn’t have enough assets to pay anything to unsecured creditors other than via the prescribed part, we’ll ask the secured creditor to do so instead. If creditors or the committee do not fix the basis of our fees and Category 2 disbursements, we may apply to the court to fix them no later than 18 months after the date of our appointment.

https://www.r3.org.uk/media/documents/publications/professional/R3%20Guide%20to%20Creditors%20Committees.pdf





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Before the basis of our fees can be approved, we must provide all creditors with the following:

Details of the work we have done and propose to do (much of which has been included in this report);

Details of the expenses we expect to incur; and

If any element of our remuneration is to be on a time cost basis, an estimate of the hours likely to be incurred and the hourly rates for that work.

We will circulate a further report containing this information in due course

Ending the administration

Our exit route will depend on the outcome of the administration. At the moment we think that the most likely exit routes are as follows:

(a) As we’ve said above, we think there will be a dividend for unsecured creditors from the prescribed part.

Assuming that’s the case, once we’ve paid any prescribed part dividend and finished our other work,

we’ll file a notice with the Registrar of Companies and the Company will be dissolved three months

later. But if we think that there are matters that should be conducted/investigated in a liquidation

rather than in the administration, we may instead apply for a court order ending the administration

and for the Company to be wound up

OR

(b) In the unlikely event there may be a dividend to unsecured creditors (other than from the prescribed

part), once finished our other work, we’ll put the Company into creditors’ voluntary liquidation so that

the liquidator can pay the dividend. If this happens, we propose that Michael Thomas Denny and Toby

Scott Underwood are appointed as joint liquidators (or, if replacement administrator(s) are appointed,

any person(s) appointed as administrator(s) at the time of the registration of notice of moving from

administration to creditors' voluntary liquidation per paragraph 83(4) Sch B1 IA86) and that any act

required or authorised to be done by the joint liquidators can be done by either or both of them.

Creditors may, before these proposals are approved, nominate a different person or persons as

liquidator(s), in accordance with paragraph 83(7)(a) of Sch B1 IA86 and rule 3.60(6) IR16.

OR

(c) In the unlikely event there may we be a dividend to unsecured creditors (other than from the prescribed

part), once we’ve finished our other work, we’ll apply to the court for permission to pay any surplus

funds to unsecured creditors. If this is granted, we’ll end the administration by filing a notice with the

Registrar of Companies and the Company will be dissolved three months later. If we don’t get

permission we’ll put the Company into creditors’ voluntary liquidation, or comply with the terms of any

court order if different. If the Company goes into creditors’ voluntary liquidation, we propose that

Michael Thomas Denny and Toby Scott Underwood are appointed as joint liquidators (or, if

replacement administrator(s) are appointed, any person(s) appointed as administrator(s) at the time of

the registration of notice of moving from administration to creditors' voluntary liquidation per

paragraph 83(4) Sch B1 IA86) and that any act required or authorised to be done by the joint

liquidators can be done by either or both of them. Creditors may, before these proposals are approved,

nominate a different person or persons as liquidator(s), in accordance with paragraph 83(7)(a) of Sch

B1 IA86 and rule 3.60(6) IR16.


14

The directors have not yet given us a statement of affairs for the Company. This is because we have issued our Proposals as soon as reasonably practicable and the directors are still in the process of preparing the statement. A copy of the directors’ statement of affairs will be filed at Companies House in due course.

So we set out at Appendix D the estimated financial position of the Company as at 12 June 2019.

As required by law, this includes details of the creditors’ names, addresses and debts, including details of any security held, to the best of our knowledge at this time.

Estimated financial position


15

Court details for the administration: High Court of Justice Business and Property Courts in Leeds Insolvency & Companies List (ChD) Case CR-2019-LDS-000640

Full name: Mid--UK Recycling Limited

Trading name: Mid--UK Recycling Limited

Registered number: 03484587

Registered address: Summit House Quarrington, Sleaford, Lincolnshire, Sleaford, NG34 8RS

Company directors: Susan Armstrong Mowbray Edmund Stephens Mountain Mowbray Christopher Mountain Simon Leslie Mountain Thomas Nicholas Mountain Simon Derek Pattison Darren Thompson

Company secretary: Darren Thompson

Shareholdings held by the directors and secretary: Mowbray Edmund Stephens Mountain 150 Ordinary £1 shares Mowbray Christopher Mountain 150 Ordinary £1 Shares Simon Leslie Mountain 75 Ordinary £1 Shares Thomas Nicholas Mountain 75 Ordinary £1 Shares

Date of the administration appointment: 12 June 2019

Administrators’ names and addresses: Michael Denny of PricewaterhouseCoopers LLP, Cornwall Court, 19 Cornwall Street, Birmingham, B3 2DT and Toby Scott Underwood of PricewaterhouseCoopers LLP, Central Square, 29 Wellington Street, Leeds, LS1 4DL

Appointer’s/applicant’s name and address: The Directors of the Company, Summit House Quarrington, Sleaford, Lincs, Sleaford, NG34 8RS

Objective being pursued by the Administrators: To achieve a better result for the company’s creditors as a whole than would be likely if the company was 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 administration is in force, any function, or power, required or authorised (whether under any enactment or otherwise) to be done or exercised by the administrators in respect of the Company may be done or exercised by any or all of the joint administrators of the Company from time to time whether acting alone or jointly.

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on Insolvency Proceedings (recast) :

The Regulation applies to this administration and the proceedings are main proceedings.

Statutory and other information


16

£

Fixed Charge

RECEIPTS

Goodwill 1.00

Intellectual Property 1.00

Property 1,185,293.31

Debtors 2,714,698.69

Total 3,899,994.00

PAYMENTS

Secured Creditor - Clydesdale Bank 3,899,994.00

Total 3,899,994.00

Balance of funds held -

Floating Charge

RECEIPTS

Plant and Machinery 3,100,000.00

Licence Fee 46,504.00

Business Name 1.00

Business Rights 1.00

Customer Contract 1.00

Stock 1.00

Transferred Records 1.00

Information Technology 1.00

Total 3,146,510.00

PAYMENTS

Secured Creditor - Clydesdale Bank 814,704.69

Total 814,704.69

Balance of funds held 2,331,805.31

Notes

1) Funds held in interest bearing accounts

Mid-UK Recycling Limited

(In Administration)

Joint Administrators' Abstract Of Receipts And Payments

From 12 June 2019 to 18 June 2019

Receipts and payments account


17

Appendix A: Group structure

Green Planet Products Limited

Mid-UK Recycling Limited

M.C. Mountain and Son Limited

Buddleia Trading Limited

Fireshield Systems Limited


18

The table below provides details of costs which were incurred before our appointment as Administrators but with a view to the Company entering administration. Details of the work done and expenses incurred follow.

Details of

agreement

including date

and parties to

it

Paid

amount

(£)

Payment

made by

Unpaid amount (£) Nature of the

payment

Our fees as

Administrator

s-in-waiting

PWC and the

Company (13

May 2019)

145,000.00 Company prior

to appointment

127,823.50 N/A

Expenses

incurred by us

as

Administrator

s-in-waiting

- Addlesha

w

Goddard

LLP

Addleshaw

Goddard LLP

and the

Company

(13 May 2019)

N/A N/A 64,429.00 N/A

- Sanderson

Weatheral

l LLP

Sanderson

Weatherall LLP

and the

Company

(21 May 2019)

N/A N/A 23,805.00 N/A

- Rowleys

Commerci

al Energy

Assessme

nt Limited

Rowleys

Commercial

Energy

Assessment

Limited and the

Company

(24 May 2019)


to appointment

Nil N/A

- IntraLinks IntraLinks and

the Company

(16 May 2019)


to appointment

Nil N/A

Total

(excluding

VAT)

157,193.00 216,057.50

Details of the pre-administration work undertaken and a breakdown of expenses

Our fees have been quantified on time cost basis, calculated using our usual charge out rates for work of this nature. The work was performed with a view to the Company entering administration, includes:

Appendix B: Pre-administration costs


19

Negotiating with interested parties and substantially completing the sale of the Company’s business and assets, once the offers were received and insolvency became likely;

Making contingency plans for delivering the administration under the different offer structures being discussed with potential interested parties, and assessing the potential outcomes available under different strategies within administration;

Updating key stakeholders generally and on the progress of the sale process;

Working with the Company’s directors and their legal advisors in preparing for the administration;

Completing our internal procedures in preparation for accepting the appointment;

Identifying key areas of risk and how these could be mitigated, including seeking health and safety guidance from in-house specialists;

Preparing statutory documentation and declarations required for effecting the administration

appointment and liaising with our legal advisors in this regard; and

Drafting the SIP 16 disclosure in preparation for the pre-packaged sale of assets.

Please note that the above is indicative of the key areas of work performed and is not an exhaustive list of work done.

In performing such work we estimate we will have incurred disbursements of £5k, largely relating to travel and overnight subsistence costs.

Expenses incurred by us as administrators-in-waiting

Expenses relate to those incurred by our firm and our staff in performing the work, in accordance with our firm’s expenses policy. We did not directly engage with any third parties in this case.

Addleshaw Goddard LLP were engaged by the Company in relation to legal services provided during the sale process and in effecting the appointment of administrators.

A summary of the tasks carried out by Addleshaw Goddard LLP in connection with the sale process and effecting the appointment of administrators included:

Drafting, reviewing and filing the notice of intention to appoint administrators;

Various communications with the Company’s board of directors and PwC in order to prepare for the appointment;

Drafting and reviewing the appointment documentation and attending court to file these;

Drafting and finalising the SPA and holding various discussions on this document with PwC; and

Providing general advice as required in preparation for the administrators’ appointment.

Sanderson Weatherall LLP was engaged by the Company to provide a valuation of plant and machinery

Rowleys Commercial Energy Assessment Limited were engaged by the Company to provide a valuation of plant

and machinery EPC Certificates

IntraLinks were engaged by the Company to provide the virtual data room.

Please note that the above is indicative of the key areas of work performed and is not an exhaustive list of work done.

Approval of pre-administration costs

The payment of unpaid pre-administration costs as an expense of the administration is subject to approval under Rule 3.52 IR16 and doesn’t form part of our proposals, which are subject to approval under Paragraph 53 Schedule B1 IA86. We are not seeking approval for our pre-administration costs at this time. Approval of these costs will be sought in due course.


20

Information regarding the sale of the business and assets of Mid-UK Recycling Limited on 12 June 2019 as required by Statement of Insolvency Practice No.16.

The purpose of Statements of Insolvency Practice (SIPs) is to promote and maintain high standards by setting out required practice and harmonising the approach of Insolvency Practitioners to particular aspects of insolvency work.

SIP 16 relates to situations where the sale of all or part of a company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator and the administrator effects the sale immediately on, or shortly after, appointment. This is sometimes referred to as a “pre-packaged sale”.

A copy of SIP 16 can be found at the link below:

https://www.icaew.com/-/media/corporate/files/technical/insolvency/regulations-and-standards/sips/england/sip-16-e-and-w-pre-packaged-sales-in-administrations-2015.ashx

Background Mid-UK Recycling Limited (“the Company” or “MUK”) is a subsidiary of Green Planet Products Limited (“GPP”) which also owns MC Mountain and Son Limited (“MCM”) and Buddleia Trading Limited (a dormant company) (together “the Group”). GPP also owns 54% of Fire Shield Systems Limited. MUK is the trading entity within the Group, which operated a number of sites across Lincolnshire which recycled agricultural waste, carpets, commercial and industrial waste, glass, green waste and composting, inert waste, label and packaging, material recycling facility residues, paper & cardboard, plasterboard and wood. The Company also provided renewable fuels, skip hire and waste collections. The Company traded from seven sites;

Caythorpe Material Recycling Facility (“Caythorpe”)- MUK owned the freehold;

Barkston Material Recycling Facility (“Barkston”) - MCM owned the freehold and MUK occupied the site but there was no lease in place between MUK and MCM;

Market Deeping – a waste transfer station. MUK owned the freehold;

Honey Pot Lane – a composting site which was informally occupied by MUK. There was no lease in place between MUK and the landlord;

Quarrington Haulage Yard (including engineering function) - MCM owned the freehold, but there was no lease in place between MCM and MUK;

Owmby – an ash processing facility. MUK leased the site from a third party with a formal lease in place; and

South Hykeham – a waste transfer station. This site is owned by Lincolnshire County Council (a customer of MUK), and there was no lease in place but MUK managed the site under a non-hazardous waste

Appendix C: Copy of the Joint Administrators’ report to creditors on the pre-packaged sale of the business and all of its assets


21

transfer licence and provided staff and equipment to load waste. The Council was responsible for the rent and insurance.

The Company employed 420 staff and generated revenues of £37.8m in the year ended 31 March 2018. Over the past 16 months, a significant capital expenditure programme, and the associated periodic cessation of production on certain lines whilst the capital expenditure programme was implemented, had reduced cash reserves and revenues. Koch Carbon (UK) Limited (“KCUK”), a US owned company that had worked with MUK to build a pellet processing plant on the Barkston site, provided a series of unsecured loans, totalling £5.8m, to fund the building of the pellet plant. Under the terms of the Company’s agreement with KCUK, KCUK was granted pre-emption rights on any sale of the Company. The building of the pellet plant completed in April 2019 and commissioning was expected to run for 3-4 months but the plant is currently mothballed. A substantial fire at the Barkston site in September 2018 not only reduced trading revenues but also led to the write off of assets with a book value of £3.4m. In addition, in June 2015 MUK entered into a large service contract which ran to March 2020, which was significantly loss-making, costing the business in the region of £135k per month (or £23 per tonne). The overall impact of the capital expenditure, the fire and the loss making contract placed a significant strain on the Company’s cash flow and led to liquidity issues. This was exacerbated by the withdrawal of credit insurance in March 2019 and as a result, the Company was not been in a position to file its annual accounts. The lack of credit insurance meant that waste off-takers (who remove the waste from site) required business critical payments to be made weekly. This in turn required the Company to generate sales and cash via the Company’s invoice discounting facility which adversely impacted the working capital of the business. Alternative solutions to an insolvency Given the cash constraints in late 2018 and the first quarter of 2019, the Company explored a number of alternative options to secure additional financing and cashflow support. These options included exploring additional shareholder loans and approaching alternative lenders to refinance the debt. Neither option proved successful and consequently the Company requested additional support from its bank Clydesdale Yorkshire Banking Group (“CYBG”) in the form of an increase in the overdraft from £1.5m to £2.25m. MCM is a guarantor of the Company’s bank debt. Simon Mountain, a shareholder of MUK’s holding company, GPP, also injected £400k through a personal loan to help support the business. In April 2019, the Company was approached by a large UK waste and recycling group which submitted an indicative, non-binding offer of c.£36m on a debt and cash free basis for a solvent acquisition of the business, with potential for an additional payments based on subsequent trading performance. Upon receiving this offer, the Company updated KCUK which, under its pre-emption rights, had the opportunity to offer a higher bid for the shares. We understand that KCUK declined to make an offer but instead requested the Company also approach another waste business, Beauparc, which thereafter also submitted an offer to acquire the equity for £30m on a cash and debt free basis.


22

Additionally a turnaround fund was approached and put forward a solvent offer to acquire the equity for £1 with c.£6m of consideration deferred on the basis CYBG and all other providers of debt, rolled over their debt. This offer was declined by the Company. Notice of Intention To Appoint Administrators On 11 May 2019, whilst discussions with the two interested parties were still ongoing, HMRC advised the Company that it intended to issue a winding up petition in 7 days if a £500k VAT liability that had recently fallen due was not paid. MUK had previously entered into a number of “time to pay” arrangements and HMRC advised that no further negotiation or delay in payment was acceptable and the debt was being passed to its Debt Enforcement team. Due to the cash constraints and the threat of impending legal action, the Board of Directors concluded that insolvency was unavoidable and filed a Notification of Intention to Appoint Administrators (“NOI”) on 16 May 2019. Accelerated sale process

Achieving a solvent sale of the Company during the time available was highly unlikely given the immediate working capital need and the risks to a purchaser in acquiring the equity without undertaking detailed diligence. Initial discussions with the two interested parties identified that both would need significantly longer than two weeks to transact on a solvent basis. As such, an accelerated sales process was undertaken to identify interested parties who had immediate access to cash, a strong commercial rationale to acquire the business and who could purchase the business and assets of the Company through an insolvency transaction. PwC was instructed to assist the Company with this process.

PwC discussed potential acquirers internally with Waste Sector experts within the PwC Corporate Finance team who confirmed the three key trade players that should have the strongest rationale to acquire - two of whom were the parties who had already made offers to acquire the equity.

The time critical nature of the accelerated sale process meant that it was highly unlikely that any traditional private equity firm would be able to transact in the timeframe. However PwC did approach the turnaround fund previously approached by the shareholders on the basis that such a party may be able to transact in the time available.

On Thursday 16 May 2019 PwC spoke to the three trade parties and explained the circumstances and the need to transact within the extremely tight timescale. Both the parties who had previously shown interest were asked to revise and restructure their offer such that it was to purchase of business and assets and that they were able to transact in the limited timescale. The third trade party was introduced to the process and asked to provide an indicative offer for the business and assets.

It was made clear to all three parties that the Barkston site, which is a key operational site, was owned by MCM and that this asset was also available for sale.

By Friday 17 May all three trade parties had been given access to a virtual data room with historical and forecast financials, operational details, compliance and licence


23

information, HR information and property details. The parties were asked to provide indicative offers by Monday 20 May.

One of the original parties confirmed it was too short a timeframe to transact and pulled out of the process. Beauparc confirmed its interest in acquiring all the Company’s trading assets including the Barkston site for £12m, plus a willingness to take on the outstanding hire purchase liabilities of c.£4.85m. The other trade party confirmed it only had interest in the Caythorpe site and offered £3m less the cost of clearance of all the waste on that site for that asset alone.

The turnaround fund declined to make an offer to acquire the business and assets due to the high risks associated with purchasing the properties without any formal surveys or diligence.

PwC also approached the Company’s shareholders and KCUK to ask whether they had any interest in purchasing the business and assets.

Whilst the Company looked to progress the Beauparc offer, KCUK opened discussions with the directors around providing £2m of bridge funding in order to give another interested party that could not transact in the time available, with whom KCUK was in discussions, additional time to complete its due diligence and with a view to potentially completing a transaction on a solvent basis.

Negotiations with KCUK to provide bridge funding and with Beauparc to acquire the business and assets through a pre-packaged insolvency ran in parallel until Friday 24 May when Beauparc declined to incur further costs without certainty of securing the business.

The directors prioritised securing the bridge finance from KCUK and a financing agreement was negotiated between KCUK and the Company until Thursday 30 May when KCUK withdrew its offer of funding.

PwC was then asked by the Company to re-engage with Beauparc and the interested party that had been in discussions with KCUK. Beauparc reverted, agreeing to increase its offer to £13m for all the business and assets of the Company and the Barkston site (with £12m payable at completion and £1m unconditional but deferred and payable within 11 months of completion). The offer covered all the properties, plant and machinery (including taking on all outstanding hire purchase liabilities) and MUK’s debtor ledger and it was not subject to any further diligence. On the basis that there was a reasonable prospect of securing a pre-packaged sale of the business and assets. Given that insolvency was still unavoidable, the Board resolved to file a second NOI on Friday 31 May and negotiations for the sale of the business and assets continued.

MUK received £8m of the £13m total proceeds, with the remaining £5m paid to MCM for the purchase of the Barkston property. The apportionment of consideration reflected extended negotiations between the parties, with Beauparc unwilling to transact without the Barkston site forming part of the sale agreement.

Before the Beauparc offer was accepted, PwC reverted to the interested party that had been in discussions with KCUK. That party submitted a revised offer, however it was lower than the Beauparc offer and also subject to diligence. In addition management took the decision to approach another trade player who was given


24

access to the virtual data room but on Monday 3 June they confirmed they were not in a position to submit an offer.

On 12 June 2019, Michael Denny and Toby Underwood of PwC were appointed as joint administrators of the Company and the sale of the Company’s business and assets to New Earth Solutions (West) Limited, part of the Beauparc Group, completed immediately thereafter.

The sale

The Beauparc offer was formalised in two sale agreements – one being an Asset Purchase Agreement for the sale of all the trading assets of MUK via an Administration, and a separate agreement between MCM and the purchaser for the sale of the freehold of the Barkston site.

The SPA and Barkston property sale completed on Wednesday 12 June 2019.

In summary, four trade players, a turnaround fund, the shareholders and the largest unsecured creditor were approached and given the opportunity acquire the business and assets of MUK. The Beauparc offer was the highest offer that was capable of completion in the time available.

The administrators initial introduction

MUK approached PwC shortly after the fire suffered at its Barkston facility on 14 September 2018.

The extent of the administrators involvement before the appointment

PwC was engaged bilaterally by MUK and CYBG on 24 September 2018 to review and comment on MUK’s immediate cash requirement as a result of the fire. Subsequently, PwC assisted the Company with cashflow monitoring and an initial review of refinancing. From 13 May 2019, PwC provided support in relation to the proposed solvent sale, evaluating refinancing scenarios, contingency planning and the accelerated insolvent sale process.

Alternative options considered by the directors before formal insolvency and by the administrators on their appointment and during the administration the possible outcome(s) of the alternative options, including why it was not appropriate to trade the business and

1) The options considered by the directors prior to appointment a) Trade out of difficulties - due to the deterioration of working capital, the

loss making contract and mounting creditor pressures, the Company’s directors considered this was not a viable option without further funding;

b) Additional funding from existing investor – Simon Mountain (shareholder in the holding company, GPP) provided an additional £400k personal loan which was financed through Buddleia Trading Limited, and secured against a personal guarantee. Unfortunately this was not a large enough sum to support the business longer term.

c) Refinancing –the Company approached lenders looking for additional leverage through a refinance of the business. There were discussions with seven potential asset based or alternative lenders however, no lender was prepared to complete a refinancing transaction. In addition the Company held discussions with KCUK to potentially provide short term bridge funding of £2m.

d) Solvent sale –Prior to PwC’s involvement in the accelerated sales process, an independent corporate finance boutique supported the business with initial discussions with the two trade buyers and a turnaround fund


25

offer it for sale as a going concern during the administration

(discussed in earlier section) in respect of a solvent sale. However both trade parties needed several months to complete their diligence, a timeframe not possible in the circumstances.

2) The options considered by the Administrators prior to appointment

a) Placing the Company into administration and trading whilst a

buyer for the business and assets was sought Trading the business and running a sale as a going concern was not a viable option. This was due to the inability of the Administrators to secure adequate insurance to trade the business. There were also environmental and health and safety risks associated with trading the business, including the risk of the Environmental Agency cancelling waste permits. Without the permits the Company would not have been able to trade. In addition, the support of customers and suppliers could not be guaranteed and there was a significant risk that customers would have looked to resource elsewhere and the business would have rapidly dissipated. Finally, duress payments would have been required for a number of key suppliers, meaning a substantial funding requirements for the administration. There was no available source for this funding

b) Placing the Company into Liquidation

Whether as a result of creditor action or voluntary steps taken by the Company, a consequence of liquidation would have been an immediate cessation of trade. Each site would have required a clearance of waste. The costs of clearance were subject to significant downside risk due to the uncertainties surrounding (i) tonnages of waste held on sites and (ii) nature of waste. In addition, due to the nature of the freehold properties, there was a limited population of likely buyers and the prospect of significant holding costs whilst trying to realise the sites. In our estimation, the secured creditor may have been repaid in full in due course assuming no unforeseen costs arose from environmental or health and safety related matters. However, there was the prospect that overall creditor outcomes would have been materially worse through a closure scenario than the transaction that has been completed. In addition, in a closure scenario, all employees would have been made redundant resulting in higher preferential and unsecured creditor claims from former employees. There was also the prospect of increased unsecured creditor claims (eg through breach of contract or consequential loss claims), and significantly higher professional costs in dealing with site closure and realisation matters.

c) Sale by way of a pre-packaged administration It was concluded that this was the best outcome for the Company’s creditors in the circumstances, because:

i) The purchaser would take on all of the risks and future liabilities immediately;

ii) Employees would transfer to the purchaser, mitigating preferential creditor claims in respect of arrears of wages and holiday pay and ensuring continuity of employment;


26

iii) The immediate sale would mitigate disruption for customers by providing continuity of service, which is expected to reduce the level of unsecured claims in the administration; and

iv) The sale provides certainty of outcome. The alternative of a closure strategy would have carried significant downside risks, particularly in respect of property realisations, site clearance and holding costs.

Whether efforts were made to consult major or representative creditors

The communications with key creditors of MUK were as follows

1. CYBG had been in direct communications with MUK and PwC since PwC was engaged in September 2018. At the date of administration it was owed c. £12m and was therefore the largest creditor of the Company;

2. KCUK is owed c.£5.8m in respect of its funding of the building of the pellet plant. KCUK had been in communication with the Company and was formally notified of the situation by PwC after the first NOI was filed. Both the Company and PwC invited offers from KCUK to support and/or purchase the business;

3. HMRC is owed c.£1m in respect of VAT and PAYE. A call was held with

HMRC on 22 May 2019 to provide an update on the sale process and to notify HMRC that the Company was also looking to secure funding that would allow it to continue to trade;

4. The directors and shareholders have together, whether directly or

indirectly, provided loans totalling c £2.6m to the Company. The shareholders were made aware of the sales process (but declined to make any offer), and were aware of the Board’s efforts to secure both additional funding and/or a sale.

These four creditors are estimated to account for over 60% of the total creditors of the Company. Wider communication to the Company’s creditors prior to any appointment could have significantly destabilised the business and adversely impacted the value of the business.

Requests made to potential funders to fund working capital requirements

As noted above, alternative lenders were approached with no suitable offer received, a turnaround fund was approached who did not put forward an offer and a shareholder injected £400k as a personal loan. CYBG was approached and confirmed that it would not provide any further, additional funding beyond the additional £750,000 overdraft facility it provided in October 2018, which took its overdraft facility to £2.25m.

Details of registered charges with the dates of creation

CYBG have two registered charges:

1. November 2016 - fixed and floating charge covering all property and undertakings of the Company: and

2. December 2016 – fixed property charges over land and buildings at Market Deeping and Caythorpe.

Whether or not the business or business assets have been acquired from an insolvency

No


27

practitioner within the previous two years

Marketing activities conducted by the Company and / or administrators

Given the period in which to transact it would have been very challenging to bring new trade or private equity purchasers to the point where they could transact in the short timeframe available. PwC’s waste sector experts agreed that the key parties who were likely to have interest, and could transact in the very short timescale, were the two trade parties already in discussions with the Company, together with one further trade buyer. These three parties were the focus of the accelerated sales process. Given that two of these parties had already been provided with information and had made substantive offers for the business, exploring a restructured offer for the business and assets was the focus of the sale process. For completeness, the turnaround fund, KCUK and the Company’s shareholders were also approached. A fourth trade party was also subsequently approached but it could not progress its interest in the time available. For this business, there was a very limited pool of likely buyers with both (i) a strong strategic rationale to acquire and (ii) the ability and funding to transact in the timeframes required. Wider marketing activities would therefore not have achieved any stronger interested bidders and would likely impacted the Company’s reputation having a significant detrimental impact on value.

Valuer’s details

Property Savills – Ground floor, 14 Merchants Place, Merchantgate,, York in October 2016. The valuation was undertaken by Stuart Jeffries MRICS, a Director of Savills (UK) Ltd and Peter Massie, a Graduate in the Minerals and Waste Department. The valuations were also reviewed by James Sadler MRICS, an Associate Director at Savills (UK) Ltd and discussed with Ian Muxlow MRICS, a Director of Savills (UK) Ltd. The Properties were inspected on 19 September 2016 by Stuart Jeffries MRICS and Peter Massie. They were able to inspect the whole of the properties, both externally and internally, but limited to those areas that were easily accessible or visible. All those above with MRICS qualifications are also RICS Registered Valuers. Furthermore, in accordance with VPS 3.7, Savills confirmed that the aforementioned individuals have sufficient current local, national and international knowledge of the particular market and the skills and understanding to undertake the valuation competently. Savills were instructed on behalf of the bank and therefore deemed sufficiently independent. The valuation has been relied upon given the timeframe available and the cost of re-engaging Savills or an alternative agent. Plant and Machinery Sanderson Weatherall – The Chancery, 58 Spring Gardens, Manchester, M2 1Ew – valued the plant and machinery in May 2019. Sanderson Weatherall is a national practice of Chartered Surveyors and Valuers. The valuation was undertaken by David Fawcett FRICS IRRV (Hons). Sanderson


28

Weatherall was engaged by the Company and have confirmed their independence in carrying out the valuation and that they had no conflicts.

Valuations of the business or the underlying assets

Savills’ valuations of properties were follows: Market value (assumes vacant possession i.e. after clearance of all waste from sites): Caythorpe £4m, and Market Deeping £1.2m The valuations were provided with significant caveats around the level of comparable transactions for sites of this nature and the limited population of potential buyers. Given the time restrictions and the comfort that these valuations were less than 3 years old these are the valuations used throughout the process. Since the valuation took place, Caythorpe has had the additional Unit 12 and Unit 14 and Barkston has had an additional 100,000 tons on permit and additional sheds built on site. Sanderson Weatherall’s valuations of the plant and machinery in May 2019 - unencumbered plant and machinery was £6.4m on an ex situ basis. The ex situ valuation was used on the assumption that plant and machinery would be split between a number of purchasers had the assets been sold in a shutdown scenario, therefore having to be transported from site. In order to realise the Company's assets on a vacant / ex-situ basis, the administrators estimate that costs of £4.1m to £4.8m would be incurred. A significant proportion of this estimate, £2.9m to £3.6m, relates to the costs of preparing and holding for sale the properties at Caythorpe and Market Deeping on a vacant possession basis. The costs would include waste uplift and disposal costs, insurance, security, holding costs and professional fees associated with the disposal of the properties. There is inherent vulnerability, specifically in relation to waste uplift and removal costs. Actual waste stored at the properties has the potential to significantly exceed estimates, and the mix may vary adversely. This fundamental vulnerability has the potential to increase costs of realisation further beyond the ranges estimated..

The date of the transaction

12 June 2019

The identity of the Purchaser(s)

The purchaser is part of the Beauparc Group. The entity purchasing the business and assets is New Earth Solutions (West) Limited. A guarantee was given by the purchaser’s UK holding company, DM Topco Limited, in respect of the deferred consideration. DM Top Co Limited is the holding vehicle for Beauparc's UK waste assets. Filed accounts as at December 2017 show DM Top Co Limited holds £14m net asset value on its balance sheet.


29

Any connection between the Purchaser(s) and the directors, shareholder or secured creditors of the Company or their associates

There is no known relevant connection between the purchaser, directors, shareholders or secured creditors.

The names of any directors, or former directors (or their associates), of the company who are involved in the management, financing, or ownership of the purchasing entity or any other entity into which the assets are transferred

Not applicable

Whether the directors had given guarantees to a prior financier

One of the shareholders in GPP, Simon Mountain, provided £400k to MUK via a personal loan which was financed through another group entity, Buddleia Trading Limited and secured by way of a personal guarantee. This loan is not being settled as part of the transaction.

Whether the transaction impacts on more than one related company

The purchaser has also acquired the Barkston recycling site which currently is owned by another group entity, MCM. CYBG has fixed charge security over this property supporting the guarantee provided by MCM to MUK in respect of all CYBG lending to MUK. CYBG will receive all the consideration paid by the purchaser for the Barkston site.

Details of the assets and the nature of the transaction

Assets sold: All assets owned by MUK which include the Caythorpe and Market Deeping trading sites along with all contracts, plant, machinery and equipment associated with these businesses, and the debtors ledger, for c£8m In addition the purchaser has agreed to take on hire purchase liabilities of circa £4.85m in respect of financed plant and machinery. As noted above the purchase also includes the Barkston site owned by MCM. Employees and Preferential claims: All employees, 420 in total, automatically transferred to the purchaser. Consequently, it is not expected that there will be any preferential claims in respect of employee arrears of wages or holiday pay. The preferential claims in


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respect of arrears of wages and holiday pay that the purchaser is effectively settling by taking on these liabilities total circa £827k

The consideration for the transaction, terms of payment, and any condition of the contract that could affect materially the consideration

Total consideration for MUK’s assets - £8m The allocation of proceeds were as follows: Debtors ledger specifically charged to CYBG – book value of £4.6m against which CYBG had advanced £2.7m - £2.7m Caythorpe and Market Deeping properties - £2.2m Unencumbered plant and machinery - £3.1m £7m paid at completion, with a further £1m deferred to be paid within 11 months of the date of completion. (The deferred element is only conditional upon the passage of time).

Any options, buy-back arrangements, deferred consideration or similar conditions attached to the transaction

£1m of the consideration is deferred, to be paid within 11 months of the date of completion. The deferred element was a requirement of the purchaser and is only conditional upon the passage of time.

If the sale is part of a wider transaction, a description of the other aspects of the transaction

This sale is not part of any wider transaction other than the associated sale of the Barkston site by MCM. Savills’ valuation of the property at Barkston in October 2016 was follows: Market value (assumes vacant possession i.e. after clearance of all waste from sites): £6m In order to realise Barkston, the administrators estimate that costs of £3.2m to £4.4m would be incurred. Key components of this estimate include waste uplift and disposal costs (approximately 60% of the Company's waste, in tonnage terms, is stored at Barkston), insurance, security, holding costs and professional fees associated with the disposal of the property. , There is inherent vulnerability, specifically in relation to waste uplift and removal costs. Actual waste stored at the property may significantly exceed estimates, and the mix may vary adversely. This fundamental vulnerability has the potential to increase costs of realisation further beyond the ranges estimated. During negotiations with MCM it was agreed that the purchaser paid £5m for the Barkston site at completion. All proceeds from the sale of the Barkston site were paid to the Bank in respect of its lending to MUK which has been secured by way of a guarantee and security granted by MCM.

Connected party transactions

No connected party transactions known.


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The sale and purpose of administration

The statutory purpose of administration is to achieve one of these objectives: (a) rescuing the Company as a going concern, or if that is not possible or if

(b) would achieve a better result for the creditors than (a) (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), or finally, if that is not possible

(c) realising the Company’s assets to pay a dividend to secured or preferential creditors.

In this case, the joint administrators are pursuing objective (b) as it was not possible to rescue the Company as a going concern. The joint administrators confirm that the sale enables the statutory purpose to be achieved on the basis that it was the best offer received for the Company’s business and assets. A sale provides certainty of outcome, and eliminates the key risks attaching to (i) additional costs to clear the site, given the volume of waste held was unknown and (ii) ability and timescale to achieve property valuations, given the limited population of potential buyers and other significant caveats in the valuation reports. A sale also provides continuity of trade with the agreement of the buyer to take on all hire purchase liabilities and all of the Company’s employees, both of which have mitigated significant claims against the Company. In addition, the continuity of services is likely to mitigate any claims that could otherwise have arisen from customers, for example in respect of breach of contract or consequential loss. The joint administrators confirm that the outcome was the best available for creditors as a whole in all the circumstances.


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As the directors have not given us a statement of affairs for the Company we set out below the estimated financial position of the Company as at 12 June 2019. A more detailed position (including the directors’ statement of affairs) will be set out in our remuneration report which will be circulated to creditors over the coming weeks.

Notes 1. Consideration received as part of the pre-packaged sale (of which £1m is deferred for 11 months) 2. Preferential creditors are expected to be nil, as a result of the transfer of all employees to the purchaser. 3. The estimated level of debt has been obtained from the Company's records, but is subject to confirmation and potential to change as Company records are brought up to date. The directors have been asked to provide a statement of affairs which should give a more accurate position of the Company's debts. The statement of affairs will be filed at Companies House on receipt. In the meantime, the dividend prospects should be treated with the appropriate degree of caution. This guidance is only an indication and should be not be used as the main basis of any bad debt provision. 4. The estimated outcome statement does not incorporate any provisions for the costs of realising the Company’s assets or the costs of the administration. 5. The costs of agreeing creditor claims and distributing the prescribed part fund, together with the associated statutory obligations, are deductible from the prescribed part fund itself. Before the dividend is declared, we will confirm the level of costs and the net amount available to distribute. .

Notes Estimated to realise

£'000

Assets subject to fixed charges

Land & Buildings 1 2,185,293

Trade Debtors 1 2,714,699

Goodwill 1 1

Intellectual property 1 1

Total assets subject to fixed charges 4,899,994

Assets subject to floating charges

Plant, Machinery & Vehicles 1 3,100,000

Business Name & Rights 1 2

Customer Contracts 1 1

Stock 1 1

Transferred records & Information Technology 1 2

Total assets subject to floating charges 3,100,006

Preferential creditors 2 Nil

Net property 3,100,006

Prescribed part fund (600,000)

Estimated amount available to floating charge creditors 2,500,006

Outcome for creditors

Fixed charge creditors (CYBG)

Amount available 4,899,994

Estimated debt owed 3 (11,550,000)

Surplus/(Shortfall) (6,650,006)

Estimated recovery (before costs) 42%

Floating charge creditors (CYBG)

Amount available 2,500,006

Estimated debt owed (i.e. shortfall to CYBG under its fixed charge) 3 (6,650,006)


Estimated recovery (before costs) 38%

Overall estimated recovery of CYBG (before costs) 80%

Non-preferential unsecured creditors

Amount available (before costs) 4 600,000

Estimated debt owed 3 (17,544,977)


Estimated recovery (before costs) ≥ 4%

Appendix D: Estimated financial position including creditors’ details

paragraph 49 of schedule b1 mid uk recycling limited ...sch b1 ia86 schedule b1 to the insolvency...

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