Wednesday, February 26, 2020

No money guaranteed for Phones 4U creditors


This week, administrators will be able to comment on how many money can be recovered from collapsed retailer Phone 4U, although most creditors are not expecting to receive anything.

Creditors are to receive a progress report on work from since Phones 4U‘s end in September last year, when the independent mobile phone retailer fell into administration with unsecured debts of £168m.

In November, administrators warned that unsecured creditors were set to get just 0.4% of their money reimbursed, as the £430m owed to banks and bondholders took priority. It is understood that one insolvency source said: “Phones 4u creditors will lose plenty. There is practically nothing there to repay them with.”

HM Revenue & Customs is among those likely to lose out, with an outstanding £78m in VAT and corporation tax likely be written off.

Stonehill Capital Management, a US hedge fund, has bought up a large chunk of senior debt and in February signed a confidentiality agreement with PwC to enable it to access early findings from the administration.

According to PWC, Phones 4U made pre-tax profits of £43.8m on revenues of £1.16bn in 2013, the last full year it traded before its demise.

BC Partners, Phones 4U‘s owner, was slammed at the time – after it emerged that it loaded up the firm with debt in order to pay itself dividends and more than recoup its investment.

A year before its demise, Phones 4U took out expensive high-interest payment-in-kind loans so it could fund a £223m special dividend to BC Partners. The private equity group bought Phones 4U in 2011 for an estimated £600m, but only spent £205m of its own money, borrowing the remaining sum from banks and leaving it with an £18m profit on its investment.

At the same time, mobile phone operators began pulling out of contracts, which BC blamed for the downfall.