Memorandum submitted by PricewaterhouseCoopers
(DFoB 29)
I refer to your letter 21 September in
regard to additional information and also my oral evidence and
report to members and creditors.
ORAL EVIDENCE
MINUTES
I have already returned the reviewed copy of
the transcript following the oral evidence session of the 16 September
2009. I would draw your attention in the minutes to just one area
Q23, which was in regard to audits of Industrial and Provident
Societies. DFB were subject to audit as are many, but not all,
Industrial and Provident Societies. Whether they need to have
an audit depends upon their size.
ADDITIONAL INFORMATION
1. Members Money
Equity raising
Section 6 of the IPSA says as follows (as
relevant):
"(1) Where a society is, or is to be,
registered under this Act, no member thereof … shall
have or claim an interest in the shares of the society exceeding
twenty thousand pounds."
Section 6. IPSA is restrictive as it prevents
a Board from going back to Members for further equity, if indeed
those Members have already contributed the £20,000 maximum.
Debt raising
There would appear to be no such limitation
on raising debt in whatever form that takes (eg retentions, loans,
preference shares). If, however, any debt raising gives rise to
a right in shares that exceeds the £20,000 value limit
then it would be a breach of s.6 IPS Act.
You will recall the committee asked me about
the tax position faced by members as a result of the debt for
equity swap in March 2009 Q27. I indicated that I was pushing
the Inland Revenue for assistance in this matter to avoid hundreds
of separate applications to the tax authorities by individual
members, in other words we were seeking guidance that could be
used by all the DFB members affected. I regret that to date such
guidance has not yet been provided but we continue to push through
HRMC Policy Division.
2. Financial Covenants
The principal facilities were:
— an inventory finance agreement;
— a invoice discounting agreement;
— property and asset loans.
Per the facilities agreement dated 15 July
2008
Profit Before Tax (PBT)—on a cumulative
year to date basis
Financial indebtedness (amount advance by the
Bank in total)—shall not exceed
Capital Expenditure—the aggregate Capital
Expenditure shall not exceed
|
| £000's | 30-Sep-08
| 31-Dec-08 | 31-Mar-09
| 30-Jun-09 | 30-Sep-09
| 31-Dec-09 | 31-Mar-10
| 30-Jun-10 | 30-Sep-10
| 31-Dec-10 | 31-Mar-11
|
|
| PBT | (8,000)
| (7,000) | (400)
| 750 | 3,700
| 5,700 | 8,250
| 800 | 3,500
| 6,000 | 8,500
|
| Financial Indebtness | 68,500
| 70,500 | 55,000
| 62,000 | 60,500
| 62,500 | 52,500
| 59,500 | 58,000
| 61,000 | 52,000
|
| Capital Expediture | 7,500
| 7,500 | 7,500
| 7,500 | 7,000
| 11,750 | 14,500
| 14,500 | 7,000
| 11,750 | 14,500
|
|
We understand that no formal waiver letter in respect of
the Financial Indebtedness covenant was issued in respect of the
31 March 2009 position, although an over-advance of
£5.5 million on its Invoice Finance facility and an
extension of the period in which the temporary overdraft increase
was available (normally only mid month to fund the Milk cheque)
was approved during the relevant financial quarter.
Other covenants/conditions
Standard Terms & Conditions (T&C)—Standard
(T&C) include but not limited to:
— an adverse change in the overall financial condition
or operation performance which we consider material
— failure, for a consecutive period of 28 days,
to notify us of any debts
— becoming insolvent or convening and meeting to pass
a resolution to do so
— the making of a statutory demand on you under the
Insolvency Act 1986 or the entry of any judgement or order
against the company which remains unappealed or settled for seven
days
Per Overadvance Letter (9 April 2009)—the board
of directors of Dairy Farmers will use their best endeavours to
maintain levels of trading, assets and lending set out in the
Plan (5-2-3).
Inventory Finance and Invoice Discounting Agreements—audits
of inventory and sales ledger to be carried out on a quarterly
basis.
— from December 2008, the ratio, expressed as a percentage,
of the estimated market value of the inventory aged more that
15 months but less than 20 months shall not at any time
exceed 4% of the estimated market value of all inventory
— the ratio, expressed as a percentage, of the estimated
market value of inventory comprising cheddar cheese to the estimated
market value of all inventory shall not be less than 80%
— for every 2% that either covenant above are breached,
HSBC Invoice Finance reserves the right to reduce the advance
percentage by 1% (of the Invoice discount agreement)
Overdraft Letter
— the total amount outstanding under the facility shall
not exceed:
>£1,742,000 on 13 May 2009
>£2,790,000 on 11 June 2009
— during the period from the date of this letter (9 April
2009) to and excluding 13 May 2009 the maximum amount
outstanding under the facility shall not at any time exceed £8,740,000;
and
— during the period from 14 May 2009 to and
excluding 11 June 2009, the maximum amount outstanding under
the facility shall not at any time exceed £9,994,000.
Property and Asset loans —standard terms and conditions
for property and plant & equipment based lending.
I hope the above assists the Committee in its Enquiry. Please
do not hesitate to contact me if you require further clarification.
PricewaterhouseCoopers
October 2009
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