Vote no to any IVA proposal

“The only thing necessary for the triumph of evil is for good men to do nothing.”

Edmund Burke (1729-1797)

... vote "NO" to any IVA proposal.

CoBo vs investors



Based on http://www.mouseprice.co.uk/ estimated valuations, Liam Collin's own benchmark of valuing C&B assets,:

• The C&B assets are worthless - they are in negative equity. Refer to the "C&B assets - negative equity" blog entry.
• The assets were bought more than 4 years ago, with the majoirity bought 5, 6, 7 years ago ... and even after all this time their value is still minimally 77k GBP less than what C&B originally paid for them.
• A number of the properties have charging orders against them.

And given the above, C&B still tries to spin investors the yarn of 100p in the GBP return on your investment based on rental income on the C&B assets, and increases in equity values over the IVA term ... rediculous. DO THE MATHS!

Whilst I was doing some very basic investigation of IVAs back in January, I had some e-mail exchanges with Liam Collins, the most pertient snippets of which are as follows:

[Liam, Feb 6th]: The problem is the monthly payments. If we have £500 profit split between 200 creditors as remember there are other non-investor creditors too but they are included in the 4m debt. Are they likely to agree to a payment plan of £2.50 per month and a lump sum at the end of 5 years?

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There is a lot of work to do to get the occupancy levels up.  We have been paying investor interest over maintenance and so they (C&B assets) have dilapidated. So a repayment plan by way of rental income is a non-starter.

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They are not in bad shape but Loughborough is very competitive student to now since they built many new halls of residence so the standard of the residential properties must be good. I could not say how much we need in total yet until further investigation to achieve maximum yield but no matter what it is, the yield is never going to be a good enough repayment plan. It is almost entirely down to the resale in 5-7 years. With the latter being more likely to achieve some uplift.

[Liam, Feb 7th]: Max monthly payment would be around £0-£500 per month at the moment it would be 0. Problem with IVA is getting 75% to agree to a payment plan of £1-2 per month.

If interest rates move even .5% the portfolio will be cash negative.

Even 6 months into bankruptcy we can go into an IVA so we have a lot of time to think about this if it is feasible.

[Liam, March 1st]: The blog claims that 'a large portion of our debt will be written off', this is inaccurate. We are at this point going for as close to 100p in the pound repayment as possible, hence the (up to) 7 year term to allow the market to recover. Granted, this may not be achievable, but only time will tell what the market does. However, it is our current intention and we will be proposing the IVA on this basis.

So I don't think they have two pennies to rub together that would support any kind of meaningful IVA.  If an IVA is approved, there is no going back. Are you going to pin your hopes on measily monthly payments and whatever increase there has been in the product portfolio over the IVA term (not guaranteed, and could be 0)? Even if all 28 properties were theirs, there were no mortgages or charging orders, and all interest was frozen, the properties are still 117k in negative equity, and there is 3.8m of debt. Each of the 28 properties would have to rise in value and/or generate through rent 28k for each year of a 5 year IVA term to recoup this sum of money. Now there is rental income, how much and how regular this is we don't know - but there are also 100% mortgages to be serviced as well as maintenance costs. Now throw into the mix that the average price of the 27 properties (I have excluded the flat in London which really skews the figure) is 111.6k, and you see how fantastically unrealistic the growth & rent generation would have to be to recoup these losses.

And since Liam Collins likes to quote the article http://www.fmwf.com/media-type/news/2012/02/emergency-bank-overseeing-northern-rock-and-bradford-bingley-mortgages-treating-landlord-borrowers-unfairly/, let's just look at the last two paragraphs of this article in the context of what has been said above:

"Weakening house prices generally mean landlords are taking a greater part of their total returns – or the only part – from rental income. On average, nationally, a landlord’s total return per property was £4,298 over the past 12 months (to January 2012). This comprises rental income of £7,587 coupled with a decline in property value averaging £3,289.

Newnes says: ‘Investors are enjoying rising rents and cheap mortgage finance. With property prices unlikely to shoot up, rental income will be the key driving force behind total returns."

The view expressed by a growing number of C&B and ex-CBS investors is that the best way to maximise value is to force C&B into bankruptcy as soon as possible:

• The bankruptcy trustee has the ability to claw back monies from 3rd-parties. So, for example, if it can be shown that any C&B assets have been diverted to friends/family members to shield them from creditors, and/or that the partners and/or friends/family members were paid excessively high salaries for their work, and/or C&B assets have been stashed in "secret" accounts, and/or that Novocastria Lettings has been with-holding rental monies from C&B, and/or that rental monies from their Loughborough properties have been held back from C&B, etc., then the bankruptcy trustee has the power to enforce their return. An IVA practitioner does not.

• Given the countless lies, broken promises, deception and financial ineptitude of the partners, investors want nothing more to do with the partners and their cohorts. The existing C&B assets should be placed under professional property management, and profits from rental monies distributed pro-rata to creditors. As for Mortgage Express, or indeed any mortgage lender, foreclosing their mortgages on entering bankruptcy, the only rationale for them doing so is if there is a proven track record of not making mortgage interest payments (15a Moira Street was foreclosed on in 2011 for this very reason), or if the rental income is so sporadic that it is invariably not enough to cover mortgage and property maintenance costs ... in which case the assets have no value, period, and would have to be sold.

• The bankruptcy trustee has investigative powers, which the IVA practitioner most certainly does not. There are a large number of investors who have legitimate criminal charges to bring against the partners, and forcing C&B into bankruptcy means that these charges can be brought to the attention of the bankruptcy trustee who is then mandated to investigate. Within an IVA, investors wishing to bring criminal charges will have to do so out of their own pockets, which is prohibitively expensive. The partners have never accepted that any of their activities were criminal, indeed Liam Collins has stated on more than one occasion that, given the same circumstances, he would do the same again. The partners need to be held to account for what they have done, and the Editor will be alleging criminal charges of mis-selling, mis-representation and fraud once the bankruptcy trustee has been appointed.

The Editor