Harlequin investors face legal uncertainty over claims as debts hit ¬£90m
2 July 2013 11:34 am | By Natalie Holt
Investors in collapsed overseas property firm Harlequin Property may not have valid claims against the company as the joint administrator reveals outstanding debts even without investor claims are expected to hit almost £90m.
Harlequin Property, the trading name of Harlequin Management Services (South East), is an unregulated firm that sold investments in luxury resorts in the Caribbean and elsewhere, with some clients investing in Harlequin through their Sipps.
Harlequin filed for administration in April, with Anthony Davidson and Stephen Ryman of Shipleys appointed as joint administrators in May.
In the joint administrators' report sent to Harlequin creditors last week, Shipleys says based on information provided by Harlequin directors, unsecured creditor claims are expected to reach £89.1m.
Of the total money owed, £78m is due to related parties connected with Harlequin, including UK trading companies Harlequin Worldwide and Harlequin Travel, Harlequin development companies, and £147,000 in unallocated investor deposits.
Among the unsecured claims is £4.3m owed to trade creditors and an estimated £1m owed to Harlequin sales staff in unpaid commission.
The largest trade creditor is Tailormade Alternative Investments which is owed £484,543. It is part of the same group as Tailormade Independent, a former Harlequin distributor which in March was prevented from carrying out new pensions business by the FSA and was limited in disposing of its assets. Tailormade Independent is still able to carry out the pipeline business.
Harlequin directors say the company is owed £86m by other related Harlequin firms, but estimate that only £8,695 in assets is likely to be realized.
In his report, joint administrator Anthony Davidson says he has received “numerous” claims from Harlequin investors, but it appears from the documents he has seen Harlequin “only acted in an intermediary capacity” between investors and the overseas companies.
He says: “For the purposes of this report, the joint administrators have not recognized these potential investor claims as the contractual relationship is between the investor and the overseas companies.
“The joint administrators are currently seeking legal advice in this matter and will update creditors of this opinion in due course.”
Harlequin investors can still submit their claims to Shipleys pending the legal opinion.
Harlequin declined to comment.
The Financial Conduct Authority issued a warning to investors last month considering paying Harlequin and its associated companies more money, telling investors to “proceed with caution.”
Harlequin owed £86m by its Caribbean development arms
Harlequin Property, the UK-based overseas property sales agent which is at the center of a Serious Fraud Office investigation, is owed £86m by its overseas development arms and related businesses.
The sum is detailed in the administrators' report for Harlequin Management Services South East, the UK arms sales of the Harlequin group which entered administration in April.
It includes £30m owed to Harlequin Management Services by Harlequin Developments and £22m owed by Harlequin Property SVG. The rest is made up of monies owed by other Harlequin hotel and development arms registered across the Caribbean.
Next to each of the valuations of money owed by the various overseas development and trading companies, Shipleys, the administrators, have put that the estimated realizable value is "uncertain".
Regulatory Legal, a law firm that acts on behalf of some Harlequin investors, said Harlequin Management Services is entitled to ask for the £86m to be repaid.
"This sum is huge and if the joint administrators seek repayment then it is our view that it could not be repaid. This action would surely lead to the liquidation of overseas companies.
"The administrators are unlikely to permit an agreement with the Caribbean companies in relation to the £86,341,302.41, if a short period after, one or all of the companies become insolvent due to investor claims."
From the information provided by the Harlequin directors, Shipleys said it anticipates that unsecured creditor claims against Harlequin Management Services will amount to £89.1m. To date, the administrators have received unsecured creditor claims totaling £6.1m.
Shipleys said it has received numerous claims from company investors, however, it said it appears from the documentation that has been provided that Harlequin only acted in an intermediary capacity between the investor and the relevant overseas companies - therefore Shipleys are not recognizing these potential investor claims, though it said it will take legal advice on this. 1040 US Singapore
In its report, Shipleys said it believes that rescuing Harlequin Management Services as a going concern is "achievable".
However, it is not ruling out a breakup of the company and the liquidation of its assets.
The report also shows that Harlequin Management Services owes its staff an estimated £1m in unpaid commission, and puts the company's total liabilities at £83.6m.
Regulatory Legal added: "The joint administrators cannot be in limbo forever. They will either need to approve a Company Voluntary Arrangement (CVA) or place Harlequin Management Services into liquidation.
"Everything, therefore, depends on the ability of the directors of Harlequin Management Services and the Caribbean companies (the Ames's) to persuade the joint administrators that there is any prospect of repayment. This has to encompass the investors as they represent the "clear and present" danger to any CVA."