Pyrrho calls for FSA inquiry into MWB Group administration

Pyrrho Investments, a 24.5% shareholder in listed hotels and serviced office investor MWB Group Holdings, has backed calls for an FSA investigation into the events leading up to the appointment of administrators one week ago.

MWB Group Holdings, which until 31 March of this year was ran by Richard Balfour-Lynn as chief executive, confirmed last Monday that Neville Kahn and Phil Bowers of Deloitte had been appointed joint administrators.

MWB has a 75% stake in MWB Business Exchange and is in the process of selling the Malmaison, Hotel du Vin chains.

The appointment of Deloitte’s Kahn and Bowers was the result of MWB’s inability to repay an £8.0m inter-company loan it received from serviced office group subsidiary MWB Business Exchange as well as £4.8m in contractual payments”which were due to be made in monthly instalments from this September, stretching to February 2013.

MWB admitted when declaring these two previously undisclosed liabilities, on 31 October, that the company was reliant on the continuation of payments from its Business Exchange subsidiary in order to meet its own liabilities.

In the absence of further facilities offered by its principal lenders – the Royal Bank of Scotland and Lloyds Banking Group – MWB Group Holdings had no choice but to file for administration, on 16 November.

Three days later, and exactly one week ago, Canaccord Genuity Hawkpoint resigned as MWB’s financial adviser.

In an assertive stock market announcement today, Pyrrho categorically denied any suggestion that Pyrrho is in some way responsible for putting MWB into administration.

Instead, Pyrrho alleged that the company’s administration was the result of the culmination of “poor corporate governance, the conflict of interest and serious strategic errors of the board of MWB since the January 2010 placing”.

Pyrrho said it welcomes any enquiry into the events surrounding the appointment of administrators – which today’s statement indicated a number of unsecured loan stock holders are intending to pursue – and reserves its right to take legal action against current and former directors over the failure of MWB.

In the lunchtime statement to the Stock Exchange, Pyrrho wrote: “”Since MWB’s share placing in January 2010, Pyrrho has repeatedly questioned the actions of the directors of MWB and corporate actions taken by the company, both publicly via a number or announcements and privately in meetings and correspondence. ”

In particular Pyrrho refers to the sale of Liberty Plc at a 30% discount to the then share price, the failed attempt to privatise Business Exchange due it alleges to MWB’s “refusal to increase the share exchange ratio to a more reasonable level” and what it terms the costly debt refinancing in September 2011.

Pyrrho believes these events highlighted the “poor corporate governance, the conflict of interest and serious strategic errors of the board of MWB since the January 2010 placing”.

In Pyrrho’s view, it is these actions which have led to the eventual appointment of administrators to MWB.”

In October 2011, Paul Cummins, director at Pyrrho, the largest independent shareholder in MWB, wrote in an open letter to the MWB board that the company’s refinancing agreement with RBS and Lloyds would lead to MWB becoming a forced seller of key assets in order to pay down expensive debt.

Cummins argued that refinancing agreements with RBSM Investments, a fund management subsidiary of RBS which owns a 17.5% stake in the Malmaison Hotels, included a call option to buy the assets for just £1 if RBSM’s Malmaison preferred shares are not purchased by 1 July 2015.

Cummins wrote that this hangs like an axe over the heads of common shareholders threatening the confiscation of the hotel business in less than four years.

Pyrrho has been urging MWB’s directors to carry out an equity capital raising since February 2011, the Hong Kong-based shareholder said today.

An equity fund raising was always resisted by management because, Pyrrho would submit, of the dilutive effect this would have had on the overall shareholding of certain of MWB’s management,” continued today’s statement.

The statement continued:  “Pyrrho notes the lack of clarity around the 15% interest in MWB until recently owned by Audley Capital Developments Ltd and Audley Investments Portfolio Limited.

“Control of the Audley Investors changed in December 2010 and the new owners or managers are two previously undisclosed Swiss individuals.

“However no announcement of the change in ownership was made until 18 months later, in breach of FSA regulatory requirements.”

Pyrrho says it reported its concerns regarding the true ownership and control of these MWB shares held by the Audley Investors to the relevant regulatory authorities earlier this year.

The administration of MWB Group Holdings does not affect MWB Malmaison Holdings and MWB Business Exchange and their respective subsidiaries, which continue to operate as usual.

MWB Malmaison Holdings, and its subsidiaries, together own and operate the Malmaison and Hotel du Vin hotel chains. MWB Business Exchange, and its subsidiaries, together own and operate the Business Exchange serviced offices business.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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