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Save the last dance

Insolvency practitioners often have to utilities their skills within a variety of market sectors and businesses. Brian Johnson, partner at HW Fisher & Company, writes about one of his more unusual cases

Brian Johnson
Partner

In my many years in the insolvency profession, I have been involved in and am familiar with some very interesting administrations – all of which call on an IP’s ability to use the tools you have acquired as a practitioner and apply them to even the most unusual of business models.

One of the most unusual insolvencies was that of a lap-dancing club in Westminster many moons ago, which is something one rarely encounters.

Despite the nature of the business being something that we in the insolvency world seldom come across, it wasn’t actually just the services provided that made this case stand out. Despite the administration of the club, the only thing of value that the club held for the sale was their license as well as the lease of the premises. Therefore, it was paramount that throughout the insolvency the business was able to retain the license and continue to trade – as without the license, the business would hold no value for re-sale.

With any insolvency, it is our job to work for all stakeholders to ensure the interests of all stakeholders are taken into account and to maximise the outcome for all involved. Although this is not always possible, we aim to work with the owner to get the most value from the sale of all assets to pay off the creditors as well as avoiding as much personal liability as possible. However, when a business has no tangible assets, such as wholly owned premises, stock, vehicles, equipment etc., this becomes extremely hard to draw any value from in order to make a sale. In this instance, the licence was the only item of value for sale, alongside the leasehold interest in the property.

Because the dancers at the club all operated on a self-employed basis, trying to keep them working became complicated as they were considered ordinary unsecured creditors rather than employees. The dancers were all paid a week in hand and in order to retain the license it was paramount that the girls continued to work there during the period of administration.

Employees, as preferential creditors, have certain claims for salary and holiday pay, which allow them rank ahead of all but fixed creditors, as well as allowing them to make certain claims on the Redundancy Payments Fund. But, in order to keep the dancers working, they had to continue to be paid despite their claim on assets not ranking as high as that of employees.

The insolvency team responsible were fully aware of this and understood that the club held no value if the license was revoked and it would be hard to get any money from a sale of the premises. Because of this, the club had to be incredibly careful not to breach the agreements of the licence – especially as the council ran regular checks to ensure everything was in order.

Unfortunately, despite a few weeks of trading throughout the period of administration, the council eventually revoked the licence and forced the club to close indefinitely. This was a real shame because despite the council’s clear dislike for the club, they were trading in an honourable manner just like any other business. Equally, by taking away the license it made the business very hard to get any money out of the club’s sale as without the licence, the club was in essence, devoid of any assets.

To add insult to injury, the lead administrator upped and left for a cruise in the final weeks of the insolvency, which left a few unhappy dancers to say the least! In fact, the office of the administrator was visited by some unwanted visitors in demand of additional payment for the dancers final week of work! It would have been a very interesting day to be in the reception of that office, I’m sure…

Finally, any suggestion that the administrators and their staff were excessively hands on in respect of this job is scurrilous.

Posted on 21st July 2014 by

 

 

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