Shareholders in collapsed fashion retailer Koovs have threatened to sue FRP Advisory as a director over allegations the restructuring group arranged the sale of the company to its former directors at a substantial discount from its value.
In a letter to FRP seen by the Financial Times, lawyers for four Koovs investors called for an investigation into potential breaches of the company’s obligations in a Â£ 3million deal that handed over the assets of the company to founder and chairman Lord Waheed Alli and wiped out their holdings. .
Koovs, nicknamed ‘the Asos of India’, was introduced to the Aim market in London in 2014 with a value of Â£ 36million, but never made a profit. That figure had fallen to around Â£ 12million when its shares were suspended in December 2019, the same day the directors were appointed and the company was sold to Alli’s company, SGIK 3 Investments.
The administration of the prepack was announced after another Indian retailer, Future Lifestyle Fashion, failed to deliver the Â£ 6.5million of pledged investment, leaving Koovs unable to stay afloat.
On behalf of Koov’s investors – Jamie Adlam, Neil Fallon, Jane Peretti and Kush Rattan – Locke Lord’s lawyers claimed that the company had been sold at a “substantial undervaluation” and that the value of their clients’ holdings had been “reduced to zero” as a result. They asked to see the valuation obtained by FRP and asked if the company had been marketed to bidders other than SGIK 3 Investments and if the directors had defaulted on their obligations. They also asked FRP to consider whether to resign in order to avoid a conflict of interest in any investigation.
Responding to the lawyers’ claims, a person briefed on FRP’s decision-making regarding administration and sale said SGIK was the sole bidder for the company, meaning the only alternative would have been to shut down the business. without recovery of value.
The case is the latest in a series of examples of suspected conflicts of interest for restructuring advisers as the industry braces for an expected wave of corporate collapses when Covid support programs are cut . A group of multi-party MPs is investigating concerns that the relationships of insolvency practitioners with lenders, directors and buyout companies conflict with their obligations to creditors of bankrupt companies.
FRP âhas been involved at key stages in the consultancy [Koovs] and its board of directors “before filing an application for administration and announcing the agreement to sell its assets to SGIK 3 Investments, Locke Lord’s attorneys said in the letter to FRP directors Geoff Rowley and Jason Baker.
The letter to FRP stated that it was “possible for our clients to ask the court to remove and replace directors” if the director failed to fully investigate and deal with these conflicts.
He also called for an investigation into whether Alli and other directors have complied with their statutory and fiduciary obligations. The letter complains that the administrators failed to notify the market in a timely manner of their decision to file an administration request.
In addition to Locke Lord, the shareholders also hired the corporate spy agency Red Mist to help them put their case together.
Alli did not respond to a request for comment.
FRP said, âThroughout the administrative process, the Joint Directors fulfilled their statutory obligations and acted in accordance with all relevant professional standards. By securing the sale of the business and assets of Koovs PLC, the joint directors ensured the best possible outcome for the creditors. “