Leonard Curtis under fire over Middle England Developments deal

THE administrators of Middle England Developments are under fire over the sale of freeholds to four of the group’s six student properties.

A business called JLK Ltd, whose sole shareholder is Middle England director Nigel Russell, has acquired the assets for just £10,000, but there is a condition that Mr Russell pays a further £500,000 as settlement of £1.8m of inter-company debts.

The details are held within an administrators’ report filed by Manchester-based accountancy firm Leonard Curtis which was appointed in November.

Now Harrogate-based building management company, Derwent FM, which manages the blocks, is considering legal action over the deal.

It tried to table a higher offer on behalf of buy-to-let investors who bought flats and felt each freehold should have been offered on a building-by-building basis to investors. It is also unhappy that the deal was wrapped up in a larger transaction that settles inter-company debts, rather than generating cash for creditors.

Derwent’s managing director Martin Corbett told TheBusinessDesk.com: “We’re considering legal action to get the debt swap overturned. Each individual building should’ve been able to make an offer for their freehold.”

Leonard Curtis could not be reached for comment, but an email from the firm to an investor, seen by TheBusinessDesk.com, argues that Mr Russell’s offer was the only viable deal.

Mr Russell told TheBusinessDesk.com: “It was the highest offer, and a legitimate offer secured by property. Leonard Curtis did what they had to do which is to achieve the best deal for creditors.”

He added: “The only reason why we went after those freeholds was to protect our interests in other assets in those buildings.”

Middle England developed 500 apartments in nine sites around the city, selling student “pods” to some 300 investors who were promised guaranteed rental returns. The freeholds of three were transferred to investors before the firm collapsed. Of the remaining six, two are unfinished and one – Alexander Terrace – has been shut down by the council on hygiene grounds because of a problem with hot water.

The guaranteed rents dried up some time before the administration and Leonard Curtis’s first creditors’ report said investors were owed around £260,000. The company had total debts of £3.8m with £674,923 outstanding to HM Revenue & Customs and trade creditors owed £1.7m. Mr Russell sought to avoid administration with a company voluntary arrangement (CVA), offering £45p in the pound, but this was rejected.

A subsequent progress report said a representative of the investors offered £1 for the freeholds of six properties. This was accepted on Victoria Court, Princes Road and Epsley Court, Gradwell Street, but four others went to JLK – Alexander Terrace, Hatton Garden; The Papermill, Henry Street, which is unfinished; St Joseph’s, Woolton Road, which is also unfinished; and St Andrew’s Place, Rodney Street.

Liverpool City Council still has the final say on the transfer of St Andrew’s, a grade II-listed church which it sold to Middle England for £1 in 2011. The council had promised a grant of £200,000 and English Heritage offered £223,000 to help complete a full restoration. English Heritage has since withdrawn the offer but the council has permitted the release of its funds through an escrow account. It has student tenants and external work should be finished soon.

An email seen by TheBusinessDesk.com to Leonard Curtis from one of the investors said: “Is your report a true reflection of what really happened?… I also know that an offer of £700,000 was made by some leaseholders which was rejected.

“Can you please explain why this offer was rejected while you accepted the offer of £600,000 from JLK Limited which was supported with assets transferred at under value which you are supposed to investigate? You were also asked to break the bid by building so that each building could decide if they want the freehold or not and you also turned this down. Could you please explain the reason why this request was declined?”

In response to the email administrator Kevin Murphy said: “The report is an accurate reflection of the position with the freeholds. If anything, it may not go into the detail of the negotiations, and doesn’t reflect the fact that the Derwent offers started at £1 in mid-December 2013, then increased to £700,000, which was not capable of delivery.

“The £700,000 offer was later withdrawn and replaced by an offer of £1, on the condition that the investors received 30% of any settlement from the inter-company debts. The offers from Derwent on behalf of the investors were not acceptable.”