Collapsed Plymouth property firm makes £120,000 while in administration
A property business that collapsed as a result of rising interest swap loan repayments is expected to generate income of £120,000 in the six months since it entered into administration.
A creditors report relating to London and Westcountry Estates Ltd shows that the Plymouth-based business, which operates 27 business parks across the region, is expected to make £120,000, after costs, for quarters two and three.
It follows an allegation earlier this year from South West Devon MP Gary Streeter in a Parliamentary debate on interest rate swap loan mis-selling, that the company's administration was "completely unnecessary".
The company's co-founder, Mike Hockin, who was initially retained by administrators Ernst & Young to help run the business has since been made redundant, along with his son, Matthew, while another son, James, remains involved with the business.
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"I believe it proves the point that there's nothing wrong with the business. Even though they have sold off £4.5 million worth of property, the rent roll has gone up. The rent roll has taken up the slack that has been lost on sales – it's a very good business," said Mr Hockin.
London & Westcountry took out a £57 million interest swap loan from Royal Bank of Scotland in 2008 to finance the acquisition of business parks.
The swap deals were sold to protect businesses against interest rate hikes, but actually led to them repaying at pre-recessionary interest rates, which continued to rise as the base rate fell to an all-time low of 0.5 per cent. Four of LWE's business parks have already been sold by administrators – Centurion, in Exeter, Severnside, in Bridgwater, Taw Mill, in Barnstaple and Brent Mill, at South Brent – for around £4.8 million.
A payment of £4.27 million has already been made to Isobel Assetco Ltd, a company which bought a package of loans, including LWE, from Royal Bank of Scotland.
In their report, administrators Chris Marsden and Alan Bloom say they are adopting a "piecemeal" approach to disposing of the remaining sites with four parks currently on the market. They are aiming to have completed all sales by the end of September 2013.
Mr Hockin, who set the business up with his wife Diane, in 1983, said that the sell off of parts of the business had been difficult to take. "It feels like my life is being dismembered," he said.
The creditors report shows that administrators' fees stand at £599,841.
Mr Hockin alleges that RBS gave them 24 hours to sign the loan agreement and that he was given the impression it had a three-year break clause that would allow either party to exit the agreement.
But he claims that when his company tried to terminate the loan after three years, they were told that only RBS could activate the break clause and that it would cost his business £11 million to exit the arrangement.
Their loan repayments had started at 4%, before rising to 6.4%, and then, last August, to 7.5%, which the firm had not been able to afford.
London and Westcountry loan was bundled up with other troubled loans and sold by RBS to a new company, Isobel Assetco Ltd, 25% of which is owned by Blackstone, the US venture capital company, and 75% by RBS.
Ernst & Young and RBS did not wish to comment.
The Financial Services Authority believes that around 40,000 interest rate swaps could have been mis-sold to small businesses.Barclays, HSBC and Royal Bank of Scotland have so far put aside £630 million against the cost of compensating customers .