Reports from administrators at Interpath Advisory detail the huge shortfalls at the four Communisis businesses that went into administration at the end of December: Communisis Ltd, Communisis UK Ltd, Communisis Data Intelligence Ltd and Communisis Digital Ltd.
The reports are also complicated by large inter-company debts and investments, and the fact that more than £21m provided by customers via an Interim Funding Agreement appears on each company’s Statement of Affairs.
According to the filings Communisis Ltd – the parent company that sits below OSG Bidco – has an estimated total deficiency of £258.3m, while unsecured trade creditors were owed £60.3m.
Communisis UK Ltd has an estimated total deficiency of £243.9m. Unsecured trade creditors were owed £96.36m.
Communisis Data Intelligence Ltd has an estimated total deficiency £175.9m. Its unsecured trade creditors are owed just over £38m.
Communisis Digital has an estimated total deficiency of £161.4m, with unsecured trade creditors owed £23.4m.
The biggest creditors include HMRC, which is owed an as-yet-unspecified amount.
India-headquartered outsourcing and technology firm Tech Mahindra – brought in to deliver a five year digital transformation project in 2022 – is the biggest trade creditor and is owed more than £14m.
The project proved to be “more complex and costly than originally forecast”.
Last August, as the overall group faced a cash crunch and with no further funding available from its US parent OSG Group, customers of the Communisis Customer Experience (CE) print division were approached to provide money to keep the business going while a solution was sought.
In the end, 11 customers including Lloyds, Nationwide, TSB, Zurich and AXA stumped up more than £21m to keep the presses turning on their critical communications.
“Prior to administration the customers who were still providing funding advised that they would not be willing to provide further funding beyond 28 Dec 2023,” the report stated.
“…As further liquidity requests were made of the customer group, the number of customers willing to provide further funding reduced as customer resourced supply with other providers.”
The final tranche of customer funding was down from the original 11 to just four.
Multiple offers were made
Paragon’s original £1 solvent sale offer was made for just the Communisis CE division last March.
Further due diligence resulted in a revised offer in May, again of £1 and still on a solvent basis for both the CE and Brand Deployment (BD) businesses.
The SIP16 report into the sale states: “The group decided to consider the independent sale of the BD business given there was only one party willing to consider an acquisition of the group, and to ensure competitive tension was maintained.”
Subsequently, Interpath approached a further 36 parties (making 39 in total including Paragon) of which 18 requested further information.
Eight submitted first round offers, including one trade offer for the CE business, and two trade party bids for the BD wing.
But by the end of July, just four parties remained in the mix.
Complications included the absence of funding from the parentco for a ‘dowry’ of £50m-£75m to help smooth a solvent acquisition, and with customers unwilling to pick up the tab for the dowry instead.
In early October the sale process was revisited in order to re-clarify interest in an insolvent sale.
Negotiations continued and it took until November before final offers were received.
Paragon offered £26.9m for certain trade and assets of the CE business, and the shares of the BD division and agencies Psona and Editions.
A separate higher bid from ‘Party B’ of £36.7m was made for the solvent acquisition of the BD shares, including the agencies.
However, the Interpath report stated that Party B was unable to deliver a deposit into escrow in return for exclusivity, and its requirement for further due diligence and a fundraising process would have delayed completion of the deal until January or February 2024.
Interpath said that Paragon had provided “the most deliverable offer”. It also consulted with key stakeholders, who confirmed that their preferences was for certainty of a transaction with a party that had made a clear financial commitment to complete.
“The offer facilitates a significant return to the holders of the UK security.”
Joint administrators were appointed to the four entities on 28 December, followed by the pre-packaged transaction to Paragon.
Communisis CEO Phil Hoggarth resigned on the same day.
While the sale secured 581 jobs, 638 employees were made redundant as a result of the failure of Communisis.
Unsecured creditors could receive a dividend via the ‘Prescribed Part’, but the amount of this is yet to be determined.
The Communisis Pension Scheme is likely to end up in the Pension Protection Fund.
The freehold to the group’s Leeds factory is held by Communisis Pension Funding. The Pension Scheme has the rights to the first £7.5m of net proceeds from the sale of that property.