TIDMREDX
RNS Number : 5753N
Redx Pharma plc
10 August 2017
10 August 2017
THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY
THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER
THE MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THE
ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION
IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.
REDX PHARMA PLC (in administration)
("Redx" or "the Company")
Publication of Joint Administrators' Proposals
Redx, the drug discovery and development company, announces that
Jason Baker and Miles Needham of FRP Advisory LLP, joint
administrators of the Company and of its subsidiary, Redx Oncology
Limited ("Oncology") (together, the "Companies") have posted their
statement of proposals to the members and creditors of the
Companies in accordance with the Insolvency Act 1986 and the
Insolvency Rules (the "Proposals").
The Proposals, including appendices, are available to view on
Redx's website at www.redxpharma.com. The contents of the main body
of the Proposals (without appendices or schedules) are set out
below.
Redx Pharma Plc and
Redx Oncology Limited (both in Administration)
The Joint Administrators' Proposals
8 August
Contents and abbreviations
Section Content
1. Introduction and circumstances giving rise to the appointment
of the Joint Administrators
2. Conduct of the administrations
3. The Joint Administrators' remuneration, disbursements and
pre-administration costs
4. Estimated outcome for the creditors
Appendix Content
A. Statutory information about the Companies and the administrations
B. Joint Administrators' Receipts & Payments Account
C. The Joint Administrators' remuneration, disbursements and
costs information
-- Estimated Outcome Statement
-- Schedule of work
-- FRP disbursement policy
-- Fee estimate
-- FRP charge out rates
D. Schedule of pre-administration costs
E. Directors' Statement of Affairs
The following abbreviations are used in this report:
BTK Bruton's Tyrosine Kinase
CVA Company Voluntary Arrangement
CVL Creditors' Voluntary Liquidation
FRP FRP Advisory LLP
HMRC HM Revenue & Customs
LCC Liverpool City Council
QFCH Qualifying Floating Charge Holder
SIP Statement of Insolvency Practice
The Companies The entities in Administration, being Redx Pharma
Plc and Redx Oncology Limited
The Group Collectively the following entities:
Anti-Infectives Redx Anti-Infectives Limited
Immunology Redx Immunology Limited
Oncology Redx Oncology Limited (In Administration)
Pharma Redx Pharma plc (In Administration)
The Insolvency Rules The Insolvency (England and Wales) Rules 2016
The Joint Administrators Jason Daniel Baker and Miles Andrew
Needham of FRP Advisory LLP
1. Introduction and circumstances giving rise to the appointment
of the Joint Administrators
On 24 May 2017, Pharma and Oncology both entered administration
and Jason Daniel Baker and Miles Andrew Needham were appointed as
Joint Administrators.
This document, together with its appendices, forms the Joint
Administrators' statement of proposals to creditors in accordance
with Paragraph 49 of Schedule B1 to the Insolvency Act 1986 and the
Insolvency Rules. The proposals are deemed delivered two business
days after they are posted.
On 13 July 2017, the Court made an order extending the time
period for the Joint Administrators to send a copy of their
proposals to the Registrar of Companies, creditors and members of
the Companies pursuant to paragraph 107 of Schedule B1 of the
Insolvency Act 1986 until 30 August 2017, or such earlier date as
the Joint Administrators consider is appropriate. Pursuant to that
order, these proposals are being sent after the statutory deadline
of eight weeks or earlier, as set out in Paragraph 49 of Schedule
B1.
Certain statutory information about the Companies and the
administrations is provided at Appendix A.
Background information regarding the Companies
Pharma was incorporated in 2010 and was admitted to trading on
the AIM Market of the London Stock Exchange ("AIM") in March 2015.
It is the parent company of three subsidiaries (Oncology,
Immunology, and Anti-Infectives) and we understand holds all
intellectual property relating to the Group's pharmaceutical
discoveries. The research activities of the Group are undertaken by
the subsidiaries, funded by Pharma.
The Group is focused on the discovery and development of
proprietary, small molecule therapeutics to address areas of
high-unmet medical need, in cancer, immunology and infection. By
improving the characteristics of existing drug classes, the Group
aims to create differentiated, novel drugs.
The Group has an established portfolio of proprietary drug
programs that it is developing alone and in partnership with
leading pharmaceutical companies and healthcare bodies. Two of the
high value programs are advancing into Phase I clinical development
for gastric, biliary and pancreatic cancers, and for leukemia. It
is the aim of the Group that its discoveries will provide a
pipeline of potential assets to complement and combine with the
drug portfolios of larger and emerging pharmaceutical
companies.
Funding for the Group was provided by a combination of a secured
loan, government grants and equity capital.
At appointment, LCC was owed approximately GBP3.5m by Oncology
pursuant to a loan entered into in 2012. The loan is secured by a
debenture dated 1 June 2012 and registered at Companies House on 12
June 2012. The loan is cross-guaranteed by Pharma and secured by a
fixed and floating charge over its assets.
Appointment of the Joint Administrators
LCC loaned Oncology GBP2.0m in 2012, with the loan due for
repayment in 2014. The term of the loan was initially extended for
one year and again in 2015 for a further two years (to 31 March
2017). The Joint Administrators understand that at various times
during the period of the extension, the Group had approached other
financial institutions with a view to refinancing the LCC loan.
In February and March 2017, Pharma conditionally raised GBP12.3m
on AIM via a placing of 32,779,957 ordinary shares at 37.5p each.
Of these issued shares, Lanstead Capital ("Lanstead") subscribed to
11,500,000 subscription shares representing a gross value of
GBP4.3m. GBP647k of this amount was allocated to Pharma and GBP3.7m
was pledged to Lanstead under a sharing agreement pursuant to which
Lanstead were to make monthly settlements to Pharma over an
18-month period.
This is summarised as follows:
Conditional funding raised 12.3
---------------------------- ------
Less: Funds pledged to
Lanstead (3.7)
---------------------------- ------
Funds received upfront 8.6
---------------------------- ------
On 1 March 2017, LCC's lawyers wrote to the Group indicating
that repayment of the LCC loan was due on 31 March 2017. A reminder
of the repayment date was sent to the Group on 30 March 2017.
Throughout April 2017, LCC informed the Group that it required the
loan to be repaid, however, whilst reserving its position, LCC
engaged (both directly and through solicitors) in discussions with
the Group about settlement proposals. Throughout these discussions,
the Group indicated that separate discussions were at an advanced
stage with another financial institution regarding a possible
refinancing.
On 17 May 2017, the Group published its interim results for the
six months ended 31 March 2017, disclosing details of the fund
raise in February 2017, and cash and cash equivalents of
approximately GBP5.1m. In view of this financial information, LCC
considered that the Group was in a position to repay the loan in
full.
The Group continued to seek to agree terms to defer repayment of
the loan, and informed LCC that agreement to refinance the loan was
only subject to the lender's internal credit sanction and that an
unconditional offer was expected to be issued imminently.
As part of the Group's negotiation with LCC, it offered a
partial repayment of GBP0.5m to cover accrued interest while it
completed a refinancing. This offer was declined by LCC, who, via
its advisers, requested that the Group provide evidence of the
stage of discussions with the alternative lender (for example,
heads of terms and copies of relevant correspondence evidencing
progress with the refinancing). The Group did not provide any such
information and LCC made formal demand on Friday 19 May 2017 for
full repayment of the loan.
An offer made by the Group, after the demand had been issued, to
pay the sum of GBP1m by way of an immediate partial repayment of
the loan, with the balance payable within 7 days, was declined by
LCC.
On 24 May 2017, LCC appointed the Joint Administrators to the
Companies under Paragraph 14 of Schedule B1 to the Insolvency Act
1986.
The Companies' books and records show that an indicative written
proposal for a GBP1.7m loan facility had been made to the Group
during the period that negotiations with LCC were ongoing.
The drawdown of the loan was conditional on an executed
transaction for the licensing of one of the Group's intellectual
property assets. At that stage, however, there was negligible
prospect of any transaction being reached in respect of the
licensing of any asset for several months, and even if this
condition had been capable of being satisfied in a shorter time
period and the new loan issued, the amount of the new loan would
not have been sufficient to repay LCC's indebtedness in full.
Upon the appointment of the Joint Administrators in respect of
Pharma, Pharma requested the suspension of the trading of its
shares in accordance with the AIM rules.
The cash at bank at appointment of the Joint Administrators
amounted to approximately GBP2.1m and GBP60k for Pharma and
Oncology respectively.
2. Conduct of the administrations
The objective of the administrations
The Joint Administrators believe that objective (a) of the
administrations, as detailed in Paragraph 3(1) of Schedule B1 to
the Insolvency Act 1986, being to rescue the Companies as going
concerns, is likely to be achieved.
The Joint Administrators' actions
As outlined below, the situation faced by the Joint
Administrators was both complex and highly unusual in insolvency
practice. From the outset, it appeared that the Companies could be
balance sheet solvent due to the potential realisable value of the
intellectual property assets (and this has subsequently proven to
be the case following the disposal of the BTK Program to Loxo
Oncology Inc. ("Loxo") on 28 July 2017 for US$40m). The Loxo
transaction will allow both Companies to be rescued as going
concerns, paying all creditors in full. The sector in which the
Companies operate is specialised, and Pharma's AIM listed status
added a number of legal and regulatory complexities. This unique
set of circumstances has presented and continues to pose a number
of challenges to the Joint Administrators and has required them to
seek specialist advice on a range of issues in order to ensure that
the Companies could be rescued as going concerns.
Details of work already undertaken or which the Joint
Administrators expect to be undertaken are set out in the schedule
of work attached at Appendix C.
Immediately following the appointment, the Joint Administrators
and their staff attended the trading location in Alderley Edge,
Macclesfield to undertake an assessment of the Companies'
businesses.
Following discussions with the Companies' directors and other
stakeholders it was determined that it may be possible to rescue
the Companies as going concerns and that two primary strategies
would be run concurrently in order to achieve this objective:
1. Explore the feasibility of raising additional funding in
order to repay all creditors and rescue the Companies as going
concerns; and/or
2. Realise certain of the intellectual property assets held by
Pharma, the expected proceeds from which could be sufficient to
rescue the Companies as going concerns.
In addition, the Joint Administrators considered the possibility
of a combination of an asset sale and an equity fund raise, in the
event that the proceeds of an asset sale were not considered by the
Joint Administrators to be sufficient to deliver sufficient working
capital for the Group going forward.
The Joint Administrators consulted with the Group's directors
and senior management to further the concurrent strategies outlined
above. The Joint Administrators also confirmed their intention to
continue to operate the businesses whilst the above strategies were
investigated and, to the extent appropriate, implemented.
The Companies' suppliers were contacted and undertakings
provided to ensure continuance of essential supplies during the
administration period.
The Joint Administrators' team is working with the Companies'
senior management to ensure that ongoing projects are progressed
with a view to avoiding any negative impact in the value of the
assets (in particular intellectual property assets) held by Pharma,
which might otherwise arise as a result of delays in both work
undertaken by the employees as well as independent testing
undertaken by third parties.
The Joint Administrators' team is in attendance at the
Companies' premises on a permanent basis.
The attached Schedule of Work (at Appendix C) provides further
detail as to the Joint Administrators' activities since taking
office.
Rescue of the Group
The Joint Administrators progressed discussions relating to the
realisation of some of the intellectual property assets held by
Pharma alongside the proposal to explore raising further funds on
the AIM market in order to rescue the Companies as going
concerns.
In the light of the Group's cash position (as set out in the
attached Statement of Affairs) and the ongoing costs of running the
businesses and the administrations, the rescue of the Companies was
time critical and the Joint Administrators therefore considered
that it was appropriate to progress both workstreams in parallel up
until the point where a decision could reasonably be taken that one
or other route should be pursued, or ruled out, as the case may
be.
The Joint Administrators, together with the senior management,
Pharma's existing advisers and the external advisers retained by
the Joint Administrators, made significant progress towards both of
the prospective options, each of which presented a unique set of
challenges.
In the case of the proposed fund-raising on AIM, the Joint
Administrators and their advisers are not aware of any precedent
for the raising of funds on AIM by a company in administration and
so this workstream involved detailed analysis of the legal
structuring of any such fund-raise, and in-depth discussions with
Pharma's brokers and advisers.
At the same time, complex discussions continued with prospective
purchasers of the intellectual property assets, with due diligence
procedures being conducted and commercial negotiations taking
place.
PharmaVentures Limited ("PharmaVentures") was instructed to
value the intellectual property and provide guidance on the
marketing and realisation of the relevant assets. PharmaVentures
are a leading life science and healthcare advisory firm providing
advice in the following areas:
-- Valuation, fairness opinions and expert reports;
-- M&A advisory for buy and sell side, site divestments and product acquisitions;
-- BD & Licensing, full service or bespoke support;
-- Deal specific and commercial strategy; and
-- Expert testimony, dispute resolution and due diligence.
Following extensive discussions with Pharma's major shareholders
and receipt of significant creditor claims, it became clear that
the amount of funding required to return the Companies as going
concerns would not be realistically achievable through a
shareholder fund raise. In addition, a significant shareholder
expressed its view that it would seek to vote down any fund raise
that would dilute existing shareholders to the extent required to
rescue the Companies. The Joint Administrators therefore ultimately
concluded that the only realistic strategy was to realise certain
of the intellectual property assets held by Pharma.
The Joint Administrators worked closely with senior management
and PharmaVentures in order to determine potential purchasers for
the intellectual property assets. This was assisted by the
Companies' existing sales/licencing program, including the
Companies' Chief Business Officer attending the American Society of
Clinical Oncology (ASCO) conference in Chicago and the 2017 BIO
International Convention in San Diego, during the administration.
Two interested parties were identified by senior management with
whom they had previously held preliminary discussions relating to a
sale and/or license of certain parts of the Group's research
program for the development of small molecules each of which having
an intended primary mode of action as a BTK inhibitor ("BTK
Program"). Other potential interested parties were also identified
during this process, however due to the complex nature of these
assets and the associated due diligence requirements it became
evident that these additional parties would not be in a position to
complete a transaction in the accelerated timeframe and was for an
immediate value that was necessary if the Group was to survive.
Nevertheless, offers were received from several other parties but
were rejected as being too low.
Having refined the potential purchasers down to two, being Loxo
and another global pharmaceutical company ("Interested Party X"),
the Joint Administrators entered into Confidential Disclosure
Agreements ("CDAs") with these parties in order to progress the due
diligence process. CDAs have also been entered into with other
parties who expressed an interest in other aspects of the Group's
research, however a sale of any of these assets would take
considerably longer to achieve and therefore the (non-exclusive)
focus was put on a sale of all or part of the BTK Program.
Following extensive negotiations with both parties, a formal
offer was received from Loxo, whose principals expressed their
desire to complete a transaction as soon as possible, subject to
completion of further due diligence. The structure of the offer was
in principle acceptable to the Joint Administrators, however, they
provided Interested Party X with the opportunity to submit a
counter offer, amongst other reasons, because senior management was
of the view that Interested Party X was likely to place a higher
valuation on the asset which was the subject of the Loxo offer.
Interested Party X was informed of the region of the price that
would be acceptable, and that a sale (rather than a licence, to
ensure a higher up front payment) would need to be completed at a
significantly accelerated rate than hitherto Interested Party X had
contemplated. Interested Party X subsequently advised that it was
withdrawing from negotiations because it was unable to reach a
valuation that accorded with the indicative price set out by the
Joint
Administrators. In light of this development and the accelerated
timeframe required for a sale completion in order to sustain the
trading of the Group, the Joint Administrators considered that the
sale to Loxo was the only remaining strategy that would stand a
realistic prospect of rescuing the Companies as going concerns.
The sensitivity of the commercial negotiations with Loxo (and
Interested Party X) necessitated two applications to Court to
restrict the information which the Joint Administrators would
normally be obliged to file at Companies House and provide to
creditors and members. Firstly, the Joint Administrators obtained
an order permitting them to redact certain information set out in
Pharma's statement of affairs. Secondly, the Joint Administrators
obtained an order (referred to above) extending the period for
filing their Proposals and sending them to creditors and members.
The Joint Administrators considered these applications were
necessary on the basis that the proposals and statements of affairs
contained certain financial information relating to the Companies,
which would not necessarily be disclosed to a purchaser in normal
commercial negotiations, and there was an appreciable risk that the
information could have been used by Loxo to its commercial
advantage in negotiations about its offer if such information was
put into the public domain. In addition, as it has been anticipated
that the Companies could be rescued, certain commercially sensitive
information was redacted to ensure the Companies' future trading
was not impacted by its disclosure.
After further negotiations, and conversations with most of
Pharma's significant shareholders, Loxo's offer of US$40m for the
entire BTK program was accepted, subject to contract and further
due diligence. This additional due diligence was undertaken by
Loxo, including a review of confidential information relating the
chemical structures completed by an independent chemist and a
review of the patents completed by independent patent
specialists.
A sale of the BTK program to Loxo was completed on 28 July 2017
for US$40m, which was paid in a single upfront cash payment. This
comprised a sale of whatever rights, title and interest the
Companies had in the patents and intellectual property relating to
the BTK program. No further royalties, licence fees, milestones or
other payments are due to the Companies under the sale agreement.
No representations or warranties have been given to Loxo under the
assignment agreement. Redx is subject to non-competition provisions
for three years following the sale relating to the BTK program.
Whilst the Companies are now in a position to settle all
creditor claims in full, the Joint Administrators must first
undertake certain statutory duties before exiting the
administrations. Crucially, the Joint Administrators must satisfy
themselves that the Companies are able to continue as going
concerns following receipt of the sale funds. The Joint
Administrators and their staff are now working very closely with
senior management to understand the proposed business model, post
asset realisation, to ensure that the Joint Administrators are able
to properly satisfy themselves as to the going concern status of
both Companies.
Next steps for the Administration processes
Following approval of the Joint Administrators' proposals, the
Joint Administrators will continue to conduct the administrations
to achieve the purpose of the administrations. Key matters to be
undertaken include:
-- Oversee certain of the Companies' continuing obligations
under the sale agreement with Loxo - specifically, pursuant to the
assignment agreement with Loxo, the Joint Administrators have
agreed that they shall not file or apply for the termination of the
administrations until the Group has complied with its obligation to
provide certain data relating to the BTK program to Loxo (subject
to Loxo making a request that the Group confirms that it has
complied with those obligations). That obligation is subject to a
longstop provision of 12 weeks from the date of the assignment
agreement;
-- Continue to trade the Companies' businesses to the extent possible;
-- Finalise the trading period transactions and release supplier undertakings;
-- Distribute realisations to the secured and preferential
creditors, where applicable, and seek the leave of the Court to
make distributions to unsecured creditors;
-- Ensure all statutory and compliance matters are attended to; and
-- Pay all administration expenses and bring the administrations
to an end, when deemed appropriate by the Joint Administrators (and
in the unlikely event it was necessary, seek an extension of the
administrations).
Receipts and Payments Account
Copies of the Joint Administrators' receipts and payment
accounts to date are attached as Appendix B, together with trading
accounts. The contents of these are self-explanatory.
The directors' Statements of Affairs
The directors of the Companies have been asked to submit
Statements of Affairs for the Companies under paragraph 47 of
Schedule B1 of the Insolvency Act 1986. Copies of the Statements of
Affairs are provided at Appendix E.
The Joint Administrators obtained the leave of the Court
pursuant to Rule 3.45 of the Insolvency Rules permitting them to
redact certain parts of the Pharma Statement of Affairs relating to
the estimated realisation values of the intellectual property
assets. This order was requested as the Joint Administrators were
concerned that the redacted information was commercially sensitive
and that its disclosure could jeopardise the ongoing commercial
negotiations (both now and when the Companies are rescued) and
therefore the interests of stakeholders.
Moreover, the Joint Administrators believed that disclosure of
the redacted information would give rise to difficult issues
arising from Pharma's obligations under the Market Abuse Directive.
The Court agreed that the release of that information was likely to
prejudice the conduct of the Administrations and therefore made the
requested order.
The Joint Administrators have reviewed the directors' Statements
of Affairs and compared the lists of creditors to claims received
to date. The claims received for Pharma are significantly in excess
of those detailed in the directors' Statement of Affairs. All
claims will need to be verified by the Joint Administrators for the
purposes of establishing entitlement to dividend. The additional
creditor schedules at Appendix E have been prepared by the Joint
Administrators to include all claims submitted to date. The table
below shows the material variances between the claims actually
submitted and those included in the Directors' statements of
affairs:
Creditor Statement Claim Submitted Difference
of Affairs
------------------- ------------ ---------------- --------------
Alderley Park
Limited Nil 137,187.84 137,187.84
------------------- ------------ ---------------- --------------
Covington &
Burling LLP 111,814.94 196,086.79 84,271.85
------------------- ------------ ---------------- --------------
Cheshire East
Council 112,325.35 205,017.01 92,691.66
------------------- ------------ ---------------- --------------
Department
for Business,
Energy and
Industrial
Strategy (in
respect of
grants repayable
to the Regional
Growth Fund) Nil 9,717,142.83 9,717,142.83
------------------- ------------ ---------------- --------------
HGF Ltd Nil 131,569.11 131,569.11
------------------- ------------ ---------------- --------------
University
of Liverpool Nil 203,719.30 203,719.30
------------------- ------------ ---------------- --------------
Total 224,140.29 10,590,722.88 10,366,582.59
------------------- ------------ ---------------- --------------
Matters requiring investigation
The Joint Administrators are required as part of their duties to
establish what assets the Companies own and to consider the way in
which the Companies' businesses have been conducted. They are also
required under the provisions of the Company Directors
Disqualification Act 1986 to report to the Secretary of State for
Business, Energy and Industrial Strategy on the conduct of the
directors. If you have any information or concerns regarding the
way in which the Companies' businesses have been conducted, or have
information regarding potential recoveries for the estate, please
contact us as soon as possible.
The end of the administrations
Once the Joint Administrators are of the view that the
objectives of the Administrations have been achieved following the
realisation of sufficient assets to discharge creditor claims and
to put the Companies in a position whereby they can, in the
reasonable opinion of the Joint Administrators, continue as going
concerns, they will send notices to the Registrar of Companies in
accordance with Paragraph 80 of Schedule B1 to the Insolvency Act
1986 to bring the administrations to an end and return the
Companies to the control of the directors.
At the point that the Companies are returned to the control of
their directors, it is the understanding of the Joint
Administrators that the directors of the Company will seek the
lifting of the suspension of the Company's shares from trading on
AIM.
Whilst it is not envisaged, we set out below, for completeness,
a brief description of the possible steps that would need to be
taken in the event that creditors cannot be paid in full and/or the
Companies cannot be rescued as going concerns.
Unless terminated earlier due to the achievement of the
objectives of administration, the administrations will end
automatically after twelve months from the date of appointment of
the Joint Administrators. This period can be extended with consent
of the creditors for up to twelve months or longer by application
to the Court as required.
If the Joint Administrators believe the Companies have no
property which might permit a distribution to its unsecured
creditors, or if they also consider that an exit from
administration into liquidation is not appropriate they will send a
notice to the Registrar of Companies in accordance with Paragraph
84 of Schedule B1 to the Insolvency Act 1986 to bring the
administrations to an end and three months after the filing of the
notice the Companies will be deemed to be dissolved.
If the Joint Administrators are of the view that dividends will
become available to the unsecured creditors (other than by virtue
of the prescribed part and other than paying the creditors in full
as part of a rescue) it may be appropriate for the Companies to
move from administration into Creditors' Voluntary Liquidation
("CVL") pursuant to Paragraph 83 of Schedule B1 to the Insolvency
Act 1986. If applicable, the Joint Administrators will take steps
to place the Companies into CVL proceedings.
In the event that a dividend does not become available to the
unsecured creditors but it is still appropriate for the Companies
to enter liquidation, the Joint Administrators will petition the
Court pursuant to Paragraph 79 of Schedule B1 to the Insolvency Act
1986 for an order to bring the administrations to an end with a
consequential order for the compulsory winding up of the
Companies.
Pursuant to Paragraph 83 of Schedule B1 to the Insolvency Act
1986, should the creditors not nominate a Liquidator in those
circumstances, the proposed Liquidators in a CVL would be the Joint
Administrators (or any successor office holder(s)). Any act to be
done by the Liquidators may be done by all or any one of them.
Pursuant to Paragraph 83(7)(a) of Schedule B1 to the Insolvency Act
1986 and the Insolvency Rules, creditors may nominate an
alternative liquidator, provided that the nomination is made after
the receipt of these proposals and before these proposals are
approved.
The Liquidators in a compulsory winding up will be appointed by
the Court and may be the Joint Administrators, or any successor
office holder(s).
If the Joint Administrators are of the view that it is
appropriate for the creditors to consider the approval of a Company
Voluntary Arrangement ("CVA") the proposed supervisors would be the
Joint Administrators or any successor office holder(s). Creditors
may nominate different supervisors when considering whether to
approve the CVA proposals.
Decision of creditors by correspondence
As outlined above, the Joint Administrators expect all creditors
to be paid in full. Consequently, pursuant to Paragraph 52(1)(a) of
Schedule B1 to the Insolvency Act 1986, the Joint Administrators
are not required to seek a decision from the Companies' creditors
under Paragraph 51 of Schedule B1 to the Insolvency Act 1986 on the
approval of these proposals, which are deemed to have been approved
in accordance with Rule 3.38(4) of the Insolvency Rules. However,
the Joint Administrators are obliged to seek creditor approval for
these proposals if they are requested to do so by a creditor of one
of the companies whose debts amount to at least 10% of its total
debts. Such a request must be made within eight business days of
the date of these proposals.
Pursuant to Rule 3.39(4) of the Insolvency Rules, the Joint
Administrators invite creditors to form a creditors committee, in
accordance with the procedure set out in Paragraph 57(1) of
Schedule B1 to the Insolvency Act 1986 and Rule 17.5 of the
Insolvency Rules. If a creditors' committee is appointed by the
creditors, the following matters will fall for determination by the
creditors' committee:
-- The basis of the Joint Administrators' remuneration;
-- Approval of the payment of the Joint Administrators' disbursements for mileage costs;
-- Approval of the Joint Administrators' pre-appointment costs being met as an expense of the administrations; and
-- The approval of the Joint Administrators' discharge from
liability in accordance with Paragraph 98 of Schedule B1 to the
Insolvency Act 1986.
If a creditors' committee is not appointed, the above matters
will fall to be determined by the creditors of the Companies by
means of voting by correspondence, in accordance with the
Insolvency Rules. These proposals are therefore accompanied by a
notice setting out the relevant Decision Procedures relating to the
various matters referred to above.
To vote by correspondence creditors must lodge a completed Proof
of Debt form, which is accepted for voting either in whole or in
part, and return the completed voting form by the decision date
shown on that form. Pursuant to Rule 15.31(4)-(5) of the Insolvency
Rules, creditors whose claims are wholly secured are not entitled
to vote and the claims of any Creditors whose claims are partly
secured will be valued for voting purposes by reference to the
unsecured part. A decision is made if, at the decision date, a
majority in value of those who have responded have voted in favour.
However, a decision is not made if those voting against it include
more than half in value of creditors to whom notice of the vote by
correspondence was sent and who are not connected with the
Companies. Notice of the decision will be sent to creditors after
the decision date.
The Joint Administrators must, however, summon a physical
meeting if requested to do so by the required minimum number of
creditors. The required minimum number is any one of the
following:
-- 10% in value of the creditors
-- 10% in number of the creditors
-- 10 creditors
The request must be made in writing within 5 business days of
the date on which the notice of decision by correspondence is
delivered, in accordance with the Insolvency Rules.
3. The Joint Administrators' remuneration, disbursements and
pre-appointment costs
Joint Administrators' remuneration
A schedule of the work undertaken and still to be undertaken
during the administrations is set out at Appendix C together with
estimated outcome statements, which include an estimate of the
expenses likely to be incurred by the John Administrators.
Assumptions made in preparing the summary of work, estimated
expenses and the fees estimate are set out in the schedule of
work.
The Joint Administrators' remuneration will be drawn from the
Companies' assets and it is proposed that it will be charged by
reference to the time incurred in attending to matters arising in
the administrations. The basis of the Joint Administrators'
remuneration has not yet been approved by creditors, and the Joint
Administrators have accordingly not drawn any remuneration to date
in respect of either of the Companies.
In the unlikely event that the Companies are subsequently placed
into liquidation and the Administrators appointed as Liquidators,
the basis agreed for the drawing of the Administrators'
remuneration will also be that utilised in determining the basis of
the Liquidators' remuneration, in accordance with the Insolvency
Rules.
Remuneration charged by reference to the time incurred in
attending to matters arising
The Administrators' remuneration, which is proposed to be
charged by reference to time incurred, is set out on the fee
estimates attached at Appendix C. Time costs incurred to date total
GBP1,151,764 and GBP48,101 for Pharma and Oncology respectively.
The time charged is based on computerised records capturing time
charged by the Joint Administrators and their staff in dealing with
the conduct of those aspects of the case being charged on a time
cost basis.
Matters dealt with during the assignment are dealt with by
different members of staff depending on the level of complexity and
the experience required. Time is charged to the case in units of
six minutes. Charge-out rates are based on individual expertise,
qualification and grade. The costs of the firm's support staff are
not directly charged to the estate unless dealing with directly
identifiable case specific matters.
My firm's time has been charged at the rates as set out at
Appendix C.
The Joint Administrators believe that the basis of their
remuneration, and in particular the application of premium rates,
is fair, reasonable and commensurate with the nature and extent of
the work to be undertaken in this case, having regard to the
principles set out in the Practice Statement on the Fixing and
Approval of the Remuneration of Appointees (2004), Part 6 of the
Insolvency Proceedings Practice Direction and Statement of
Insolvency Practice 9: Remuneration of Office Holders (2010), for
the following reasons:
-- The Joint Administrators believe that the proposed basis of
remuneration is proportionate in the circumstances and the hourly
rates and the hours worked are justified by reference to the
complexity of the administrations, as outlined in these proposals,
and the value of the assets dealt with by the Joint
Administrators.
-- The Joint Administrators necessarily became heavily engaged
pursuing two separate and alternative strategies in tandem for the
rescue of the Companies (asset sale and AIM fundraise), both of
which have been intensive highly complex, and unusual in insolvency
practice.
A particularly unusual feature of this case has been the need to
understand and address the needs of a range of different
stakeholders, including creditors, management, shareholders,
existing company advisers, and regulatory bodies. These
stakeholders have often had conflicting views on the best way
forward in respect of the Companies and the task of gauging
-- these views and accommodating them as appropriate has been a
delicate exercise. This is not a feature of the majority of routine
insolvency appointments. This work has been intensive and in many
respects unpredictable, meaning that it has not been possible to
estimate a realistic fixed fee for the work.
-- In addition, the work relating to the administrators'
statutory duties, and the work associated with continuing the
Companies' business during the period of administration has
presented its own challenges in the light of the expectation that
the Companies may be rescued as going concerns.
-- Additionally, the Joint Administrators are assuming
exceptional responsibility and risk in relation to the Companies'
affairs, in that:
(a) there was an appreciable risk from the outset that there may
have been no realisable value given only a small fraction of drug
candidates at the pre-clinical stage are eventually approved by
competent authorities, the BTK Program had not yet reached human
trials (meaning that an investment by a major pharmaceuticals
company was unlikely), and the seller was in administration;
(b) given the sums needed to ensure a rescue, it was necessary
to sell the IP rights outright (to ensure a higher initial
payment), as opposed to a licensing deal, which entailed more risk
for a potential purchaser and therefore became an even more
difficult task. This is evidenced by Interested Party X withdrawing
their interest on becoming aware of the value of the upfront
consideration required for there be a reasonable prospect of the
Administrators rescuing the Companies as going concerns. As
discussed above, Interested Party X and Loxo were only parties of
which management, the Administrators and their advisors were aware
of capable of completing a transaction at this level in the
available timescales for the BTK Program;
(c) pharma assets are inherently intangible and difficult to
value and no one was therefore able to assess the level of
consideration that would be achievable in an accelerated
administration sale;
(d) they have been engaged in highly sensitive and complex
negotiations with prospective acquirers of the Companies'
intellectual property assets;
(e) they have been required to execute transactions relating to
the realisation of IP assets on behalf of the Companies under
significant time pressure, in circumstances where the failure to
conclude a transaction with the sole remaining interested party
before the Companies' limited cash reserves were depleted would
almost certainly have resulted in the failure to rescue them as
going concerns, with all of the consequences that would entail for
creditors, employees and shareholders;
(f) because of the intangible nature of the assets and the
listed nature of the business, they have been required to deal with
a disparate variety of additional stakeholders and advisors;
and
(g) prior to determining that the sale to Loxo represented the
best opportunity to rescue the Companies as going concerns, they
had made significant progress (with the encouragement of Pharma's
senior management team) towards a possible fund raising on the AIM
market; although eventually discounted due to the clear difficulty
in raising the level of funds required to rescue the Companies as
going concerns, such a step would have been unprecedented in
insolvency practice and carried a significant degree of risk for
the Joint Administrators.
-- In the specific context of the negotiations relating to the
disposal to Loxo, there have been a large number of uncertainties
and complexities that could have de-railed the transaction. The
disposal of the BTK program has required significantly more time
than a straightforward commercial negotiation. It concerns highly
technical and scientific evaluation by both a potential purchaser
and its agents, which in turn led to a significantly more complex
due diligence exercise; whilst the Joint Administrators acknowledge
the enormous contribution to that process played by certain of the
Companies' employees and management, that process required to be
fully supervised and understood by the Joint Administrators and
their team. The number of potential purchasers for the Companies'
assets is also not substantial, given the specialised market for
the programs under development. Amongst other things, this has
seriously limited the Joint Administrators' flexibility, as
compared with the sales process relating to more conventional
assets. For these reasons, it is rarely the case that pharma
transactions are completed quickly, in this case the Joint
Administrators' success in completing the transaction barely two
months after taking office is considered to demonstrate the value
of the work carried out.
-- In the light of all of the points above, and having continued
to trade to ensure the best price was obtained for its assets,
there has always been a real risk that if neither the disposal of
the BTK Program nor the AIM fundraise had been achieved within the
limited time available, the Companies could not have been rescued
as going concerns and the Joint Administrators (and their advisers)
would have faced a real risk that they would not have been paid in
full or at all.
-- By assuming these risks, the Joint Administrators believe
that they have put the Companies in the best possible position to
ensure their rescue and future success, and that they have
therefore delivered significant value to all stakeholders.
Joint Administrators' disbursements
The Joint Administrators' disbursements are a recharge of actual
costs incurred by the Joint Administrators on behalf of the
Companies. Mileage payments made for expenses relating to the use
of private vehicles for business travel, which is directly
attributable to the administration of the Companies, are paid by
FRP at the HMRC approved mileage rate. It is proposed that mileage
is recharged and drawn at the HMRC approved mileage rate prevailing
at the time the mileage was incurred.
Pre-administration costs charged or incurred by the Joint
Administrators
Attached at Appendix D is a statement of pre-administration
costs charged or incurred by the Joint Administrators which had not
been paid when the Companies entered administration.
The Joint Administrators are seeking to obtain approval from
creditors under Rule 3.52 of the Insolvency Rules for the payment
of this amount and a stand-alone separate resolution is included on
the proxy form attached.
Creditors' ability to challenge the Joint Administrators'
remuneration and expenses
Creditors have a right to request further information from the
Joint Administrators and further have a right to challenge the
Joint Administrators' remuneration and other expenses under the
Insolvency Rules following receipt of a progress report. Further
details of these rights can be found in the Creditors' Guide to
Fees which you can access by using the following link
http://creditors.frpadvisory.com/feesguide.htm and select the one
for administrations. Alternatively, a hard copy of the relevant
guide will be sent to you on request.
Decisions of creditors on remuneration and discharge from
liability
Sent with these Proposals are notices to the creditors of the
Companies to consider (1) the appointment of a creditors'
committee, and (2) to the extent a committee is not formed, to
approve the fee structure outlined above, and (3) to make provision
for the Joint Administrators' discharge pursuant to Paragraph 98 of
Schedule B1 to the Insolvency Act 1986.
4. Estimated outcome for the creditors
Estimated Outcome Statements
The Joint Administrators attach at Appendix C an estimated
outcome statement which has been prepared from company information,
estimated sums due to creditors and an estimate of our remuneration
and other expenses that may be incurred during the course of this
administration. The assumptions made in preparing the estimated
outcome statement details are set out in the schedule of work.
Based on the information available to date and the assumptions
made the Joint Administrators set out below the anticipated the
outcome for creditors:
Outcome for Secured Creditor
LCC were owed approximately GBP3.5m by Oncology under a
debenture dated 1 June 2012 and registered with Companies House on
12 June 2012. The debt is cross-guaranteed by Pharma and secured by
a fixed and floating charge over Pharma's assets.
Following the sale to Loxo, the debt to LCC was settled in full,
including interest, and all security has been released.
Outcome for Preferential Creditors
It is currently anticipated that preferential creditors,
constituting any unpaid executive pay and unpaid pension
contributions will be paid in full. All employees have been
retained and therefore no additional preferential claims are
anticipated.
Outcome for Unsecured Creditors
Based on the strategy detailed previously in this report it is
currently estimated that unsecured creditors of both Pharma and
Oncology will be repaid in full. The Joint Administrators will
shortly apply to Court for approval to make distributions to
unsecured creditors during the administrations and a Notice of
Intended Dividend will be issued to unsecured creditors accordingly
in due course. It is intended that the application to approve
distributions will be determined by the Court as soon as possible
following the deemed approval (or, if a meeting to approve the
proposals is requisitioned, following the decision made at that
meeting) so as to ensure that unsecured creditors are paid as soon
as possible.
The Joint Administrators propose that Pharma (which has
historically funded Oncology) will provide funding so as to enable
Oncology to repay its creditors in full, or to make such provision
as the Court may direct for the payment of Oncology's
creditors.
All creditors are reminded to lodge their claims in the
respective administrations at their earliest convenience if they
have yet to do so.
Prescribed Part
The prescribed part is a carve out of funds available to the
holder of a floating charge which is set aside for the unsecured
creditors in accordance with section 176A of the Insolvency Act
1986. The prescribed part only applies where the floating charge
was created after 15 September 2003 and the net property available
to the floating charge holder exceeds GBP10,000.
A prescribed part is not appropriate in this case because it is
anticipated that all creditors will be repaid in full following the
rescue of the Companies as going concerns.
For further information, please contact:
Redx Pharma Plc (in administration)
Contact for the Joint Administrators: T: + 44 203
Matthew Kesek 005 4000
Cantor Fitzgerald Europe (Nomad & T: +44 20
Broker) 7894 7000
Phil Davies/ Michael Reynolds
WG Partners LLP (Joint Broker) T: +44 20
3705 9330
Claes Spång/ Chris Lee/ David
Wilson
About Redx Pharma Plc (in administration)
Company website: redxpharma.com
Jason Baker and Miles Needham have been appointed as joint
administrators of Redx Pharma plc (in administration). The
company's affairs, business and property are being managed by the
joint administrators.
Redx is focused on the discovery and development of proprietary,
small molecule therapeutics to address areas of high, unmet medical
need, principally in cancer, infection and immunology, providing a
pipeline of assets to larger and emerging companies. By improving
the characteristics of existing drug classes to create highly
differentiated, novel, best-in-class drugs, Redx has already
established a broad portfolio of proprietary drug programs.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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