By NEIL HARTNELL
Tribune Business Editor
Kelly's Home Centre leads the Bahamian unsecured creditors who will receive nothing of the debts owed to them by Taylor Industries, its liquidator has revealed.
Andrew Davies, the Crowe Bahamas accountant, warned in his second report to the Supreme Court that the Mall at Marathon's anchor retail tenant will not see a single cent of the almost $12,000 owed by the now-defunct 74 year-old electrical retailer and contractor.
Confirming his initial analysis that all proceeds from the Shirley Street-based firm's winding-up will almost certainly go to the Government and former employees, Mr Davies said the Department of Inland Revenue's (DIR) claim for $18,327 in unpaid Value-Added Tax (VAT) will rank as a "preferential creditor".
A Florida-based vendor, Peninsular Electric Distribution, has also submitted a claim for $134,750, but Mr Davies' report indicated unsecured creditor prospects for recovering even a single cent are slim to non-existent.
Disclosing the creditor claims received by the date of his December 13, 2019, report, Mr Davies detailed: "Kelly’s Home Centre Ltd in the amount of $11,895. This claim has been classified as an unsecured creditor claim by the liquidator.
"Given that the unsecured trade creditors are not expected to receive any distribution from the liquidation, the liquidator expects to have minimal ongoing contact with this creditor class for the remainder of the liquidation process."
It is unclear whether Kelly's Home Centre or other unsecured creditors will be protected from Taylor Industries' collapse by trade insurance, but Mr Davies' report revealed that recovery efforts to-date have realised almost $14,000 more than his initial projections.
This extra sum has been realised through a combination of selling-off Taylor Industries' seven-strong vehicle fleet; the better-than-expected recovery of accounts receivables representing sums owed to the business; and the return of $38,122 "unvested" from its employee pension plan.
Mr Davies argued that the value of Taylor Industries' electrical goods inventory had likely been "materially overstated" in the company's accounts because it had not been aggressive enough in writing-off obsolete products. As a result, the remaining inventory was sold for just 40 percent of the value shown on the balance sheet when Taylor Industries closed on January 8, 2019.
A similar percentage, 40.6 percent, of accounts receivables owed to Taylor Industries when it collapsed into insolvency has been collected by the liquidator. Mr Davies said he was mulling legal action against the largest debtor, described as "a property and construction development company" that owes more than $25,000, due to the size of this sum.
He added that several new assets and recovery sources had been identified subsequent to his first Supreme Court report, including Taylor Industries' information technology (IT) infrastructure and specialist tools that the company had used for electrical contracting jobs.
While admitting that these were likely to generate minimal value, Mr Davies said he had also been informed that Taylor Industries also holds a 1.09 percent stake in the company that owns its former Shirley Street location and Dunmore Street warehouse.
That company, Rolyat Ltd, is now seeking to sell both properties for financial gain. Mr Davies said he was seeking confirmation of Taylor Industries' equity stake, and added that he might explore selling it to one of Rolyat's major shareholders at a price that achieves proper "value" so as not to delay the liquidation's completion.
Taylor Industries never owned the real estate it operated from, which meant it could never offer a lender the most sought-after security for fresh funding when it ran into financial trouble. Tribune Business previously reported that the Taylor family, the company's major shareholder, are also among the owners of the two buildings now up for sale.
They and Rolyat's other shareholders stand to make a potentially significant financial gain from the real estate sale, especially the Shirley Street site, given that it sits on a major road in a prime commercial district near downtown Nassau. It also sits opposite Princess Margaret Hospital (PMH), and is near Doctors Hospital, both of which are thought to need more space.
Mr Davies, meanwhile, pointed out that Rolyat Ltd and its owners had permitted the liquidation team to keep Taylor Industries' inventory and other assets at the Shirley Street building free-of-charge, thereby saving creditors rental expense and inconvenience.
He revealed: "On August 19, 2019, the liquidator received notification from the law firm, Alexiou, Knowles & Company, that Taylor Industries owned 1.09 percent of the issued share capital (37 of 3,400 shares) of a Bahamian domestic company called Rolyat Ltd.
"The liquidator was not aware of this potential asset as at the date of the first interim report, and the ownership of these shares was not reflected on the books and records of the company as far as the liquidator has been able to ascertain.
Mr Davies continued: "It is the liquidator's understanding through conversations with former management and the shareholders of Taylor Industries that Rolyat owns both properties from which the Company used to conduct its business - the main building on Shirley Street and the warehouse on Dunmore Lane.
"The liquidator has been informed by the shareholders of Rolyat that both of these properties have been listed for sale. Anticipated realisations for the liquidation estate from this asset are difficult to assess in terms of when these buildings may be sold or the amount which may be received for them."
With real estate deals typically taking months to complete, Mr Davies said he may look to speed up the liquidation's exit from Rolyat especially since all other Taylor Industries assets are expected to be realised by the 2020 first quarter's end on March 31.
"The liquidator will not be able to influence the sales process of the shares in Roylat given the minority shareholding the company owns," he explained. "The liquidator is concerned the realisations from the assets in Roylat may unnecessarily delay the liquidation process, as it is uncertain as to the value the sale of the shares may yield relative to the sums the underlying properties may be sold for.
"The liquidator may attempt to obtain a valuation of the shares in Roylat and explore the possibility of selling these shares to one of the major shareholders in Roylat at a price that extracts value, and makes practical sense, for the timely progress of the liquidation."
Mr Davies added that discrepancies over the value of Taylor Industries' inventory had emerged at the outset of the liquidation. The initial listing had placed this at around $500,000, while the balance sheet showed $311,000.
"The liquidator inquired of former management as to what may be the explanation for this difference and was informed that Taylor Industries' accounting system automatically writes off any inventory that is more than five years-old," Mr Davies wrote.
"This reduces the value of the inventory on the company’s balance sheet but the inventory remains in the system given it is ostensibly physically still in Taylor Industries' possession. The Liquidator was of the position that the five-year threshold for writing-off inventory was probably not conservative enough for a retail business and it should have been closer to three years, especially for many of the product lines that had become obsolete through technological advancements.
"Based on conversations with management and former company inventory staff, it was the liquidator's opinion the $311,000 value of the inventory as shown on the company balance sheet was probably materially overstated."
No formal bids were received for the inventory by the liquidator's set deadline, despite eight persons and companies viewing it. "The liquidator eventually received a formal offer for all of the inventory from a potential buyer who had been previously identified as a party who may be interested in purchasing the inventory," Mr Davies said.
"The liquidator entered into negotiations with this buyer and eventually agreed the sales price of $125,000 for all of the inventory to be sold under an ‘as is, where is’ basis. Based on the relatively specialized nature of the inventory, the full exposure of the sales process to a small market for potential buyers and the limited number of expressions of interest already received, the liquidator determined that the price negotiated was acceptable for this asset and would maximise returns for creditors of Taylor Industries."
Mr Davies said some $77,167, out of a total $189,851 owed, had been collected from a total of 232 debtors owing accounts receivables to Taylor Industries. "Approximately 80 per cent of these accounts were for aged balances under $1,000, which made it difficult for the liquidator to justify the time and associated cost in trying to collect them," he said.
"The largest receivable due was from a property and construction development company in the amount of $25,404. The liquidator has managed to collect $3,000 from this customer but has been informed they will not be able to make any further payments until they are able to generate revenue from new work. The liquidator will continue to monitor this situation and may consider various legal options to collecting on this debt given its relative size."
Mr Davies had accumulated a net $273,000 as at December 13, 2019, with which to pay creditor claims. However, the collective $682,096 in termination pay due to Taylor Industries’ former staff dwarfs this alone, meaning the ex-employees will also likely only collect cents on the dollar.
Nevertheless, he added: "The liquidator is satisfied at the progress of the liquidation given the nature of the assets the company owned and the challenges of finding qualifying buyers in a small market with current economic conditions being unfavourable for the retail industry."