Paperhat subsidiaries sold, but trade creditors left in the cold
Friday, November 30, 2018
The fates of Paperhat Group and its various subsidiaries have been revealed in administrators' proposals, which also state that unsecured creditors, who are owed £1.5m, will receive nothing.
Philip Watkins and Anthony Wright of FRP Advisory were appointed joint administrators for both Paperhat Group and its trading subsidiary Paperhat Communications on 9 November. On the same day, the sale of Paperhat Communications to Paragon in a pre-packaged deal was completed, in agreement with the firm’s three key clients Christie's International, ad agency DDB UK and MoneyGram International.
Prior to the sale to Paragon, FRP had been in discussions with a number of potential buyers, but it said that none of the other interested parties were in a position to complete the transaction in the required timeframe.
At the time, the status of Paperhat Group, a non-trading holdings company for its subsidiaries, and its remaining subsidiaries was unclear.
However, a report sent to creditors by FRP on 19 November and yet to reach the public domain has shown that the sale of Paperhat Communications was one of three pre-packs in various stages of completion, the other two involving Paperhat Communications subsidiary Nirvana Solutions and Paperhat Group subsidiary CTI Digital.
Nirvana, trading as Nirvana CPH, was sold back to its previous owners Garry Stiff and Spencer Wallace for £54,000 on 14 November in a deal PrintWeek reported previously.
According to the administrators’ report, FRP was first engaged by Paperhat Group in the summer of 2017 after the business was impacted by the loss of Communications’ key customer Wrigley’s. Sales dropped from £14.5m to £8.6m from February 2017 to February 2018. Net profits plummeted from £2.2m to a £494,000 loss in the same period.
This led to Nirvana loaning £1.1m to its parent which Paperhat could not repay, leading to a “complete breakdown in the relationship” between the two companies and discussions for a sale back to previous management began as early as July.
FRP was then re-instructed in September 2018 as trading at Communications had not improved, which it said was party due to increased costs and delays in on boarding a new client, understood to be MoneyGram International, which the business had hoped would mitigate the loss of Wrigley’s.
CTI Digital had similarly entered an agreement on 31 August with Paperhat Group to buy back the parent’s 54% shareholding in exchange for the cancellation of a £698,000 loan owed to CTI. Before the administration was confirmed, it had been hoped the sale of CTI would help to recapitalise the group.
CTI's management completed the buy back on 22 November.
It has also been confirmed that the sale of Paperhat Communications to Paragon, which it took along with it subsidiaries Paperhat USA and Paperhat Hong Kong, was conditional on Paragon’s ability to purchase Despark, a Bulgarian app development firm owned by Paperhat Group. FRP has confirmed that Despark was sold to Paragon in this transaction.
Paragon agreed to pay £1,050,000 for the businesses, assets and good debtor book of Paperhat Communications. This was subsequently reduced by £85,000 during negotiations after it became clear that some debts were not realisable, the report stated.
The Paperhat Group companies collectively employed 180 people, and the only redundancies so far have been the seven employees at group subsidiary Paperhat FTP, a retouching studio, which will enter liquidation.
An FRP Advisory spokesperson said: “We will continue to realise funds from the sale of the assets and deal with creditors’ claims, there is one very small subsidiary Grebot Donnelly Associates which is solvent and non-print related which will also be sold in course.”
At the time of administration, around £1.4m was owed to Paperhat Communications trade creditors and a further £113,000 to trade creditors of Paperhat Group.
According to FRP: "There will not be sufficient funds available to make a distribution to unsecured creditors."