Russell-Cooke was engaged by 4Children in mid-2015 when potential cashflow issues first emerged. At that stage Andrew Studd and Benn Richards provided advice to the trustees and senior management team about their duties under charity law and company law and as to whether their insolvency duties were engaged. 4Children also engaged Adam Stephens at Smith & Williamson, a licensed insolvency practitioner, to advise the trustees on the practicalities of their turnaround plan and to support discussions with a number of key stakeholders.
Over the next 12 or so months the charity and social business team continued to advise on a number of discrete projects. After the loss of a major surplus generating contract it became evident to the trustees that it would be extremely difficult to survive as an independent going concern and that they needed to take specific insolvency advice.
Andrew Studd and Benn Richards advised the board on their duties given the current (at that time) financial situation and in particular the need to ensure that all decisions were taken with a view to minimising losses to creditors. Balancing this overriding objective was a strong desire to preserve as many services for the benefit of parents and children as possible.
4Children’s senior management team had been in informal conversations with Action for Children about closer collaboration and a potential merger since 2015 when the initial difficulties emerged. Once the financial position became clear they accelerated the discussions. As lawyers, we began to plan for the potential merger considering structures and potential insolvency processes designed to preserve as much of the business as possible and to save as many jobs as possible. As a first step the team organised extensive amounts of information into an online data room to allow a speedy due diligence exercise by third parties potentially interested in the business. We continued to provide advice to the board in relation to their insolvency duties, balancing the financial position and forecasts, the progress of negotiations and the tipping point at which outright insolvency could have meant closure of the business.
One of the key issues, in thinking about the interests of creditors, was how to minimise their losses given 4Children’s “business” was not of itself a valuable business that could be sold and the proceeds of which applied to reducing liabilities. As such the focus was to ensure that relevant contracts were transferred, not only to ensure continuity of service for children and their parents, but also to ensure that the Transfer of Undertakings (Protection of Employment) Regulations were engaged with the effect that employment liabilities were transferred to new service providers. This way potential redundancy costs were reduced.
Many of the contracts were with local authorities, and while most agreed to the transfer to Action for Children, a number chose to bring the service back in-house. Over a period of two weeks, the team worked closely with Action for Children’s legal team, led by Sophia Dirir, and negotiated numerous “Service Continuity Deeds” between 4Children, the local authorities and Action for Children.
Once the proposed transactions were substantially agreed, Russell-Cooke advised 4Children on the processes required to appoint an administrator to the seven group companies and Adam Stephens (as lead administrator) and colleagues were formally appointed as administrators. At that point the transactions to transfer services were entered into.
Benn Richards said “this transaction has showed the strength and depth of the charity and social business team and the insolvency and recovery team and how the respective teams worked closely together in order to achieve the best result for the end users of 4Children’s services, save a substantial amount of jobs and achieve the best outcome for creditors”.