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PROPOSAL FOR A SCHEME OF ARRANGEMENT
React Energy Plc
(In Examination Under the Companies (Amendment) Act 1990, as Replaced by the Companies Act 2014
Their Members and Creditors
Table of Contents
Part 1: Preliminary
Part 2: Background
4. Presentation of Petition
5. Independent Accountants Report and Formulation of Proposals
6. Company and Business
7. Additional Important Information regarding Company AIM Listing
Part 3: Proposals and Investment
8. Scheme Summary
10. Prospects of Survival
Part 4: Treatment of Members and Classes of Creditors
11. Treatment of Members
13. Treatment of Creditors
14. Effect of Proposal on Company Value
Part 5: Determination of Claim
15. Determining the Claims of Unagreed Creditors
16. Waiving of Creditor Rights
Part 6: Implementation
Part 7: Miscellaneous
19. Foreign Currency Conversion
20. Non Admission of Claims
21. Guarantees and Section 25A of the Act
23. Changes in Management or Direction of the Company
24. Changes in Constitution of Company
I. Information on Related Companies
II. Organisational Chart
IV. Creditors by Class
V. Statements of Assets and Liabilities of React Energy Plc at 21.06.15: Prepared on a Going Concern Basis and Winding Up Basis
PART 1: Preliminary
In these Proposals the following expressions have the below mentioned meanings unless the context otherwise requires:
The Companies (Amendment) Act, 1990 as amended, as replaced by the Companies Act 2014
Altair Group Investment Limited, the secured loan note holder
An amount due to a Creditor as at the Fixed Date which is a debt to an Agreed Creditor, Preferential Creditor (Revenue and Employees), Secured Creditor.
React Energy Plc (Registered Number 462961), having its registered office at Building 1000, City Gate, Mahon, Cork.
‘Companies in Examination’
React Energy Plc, Newry Biomass Limited, Reforce Energy Limited, Grass Door Limited, Enfield Biomass Limited, Plymouth Biomass Limited
The date on which the Court confirms the Proposals pursuant to Section 24 of the original Act, now Section 541of the Companies Act 2014.
The High Court of Ireland.
The classes of Creditors of the Company listed in paragraph 13.2 and listed in Appendix IV.
In respect of each Unagreed Creditor the date of final agreement, settlement, crystallisation or determination of that claim.
Unagreed Debt which has been determined by the Expert.
The directors of the Company, being Mr Gerry Madden, Mr Brendan Halpin, Mr Eddie Barrett and Mr Dermot Patrick O’Connell.
A notice served by the Company on an Unagreed Creditor or a Disputed Creditor disputing the liability to the said creditor.
EcoFinance (GLI) Limited, the investor
The date on which the Proposals become binding on the Creditors and the Members in accordance with the provisions of the Act, being the date fixed by the Court in accordance with Section 24 (9) of the Act, now Section 542 (3) of the Companies Act 2014, and on which date the Company will cease to be under the protection of the Court.
Edmonton Property Company Limited
Mr Carl Dillon, Moore Stephens Nathans, 83 South Mall, Cork.
Michael Cotter of Ernst & Young, Lapps Quay, Cork to act as Expert with respect to a claim for the purpose of these Proposals.
Farmer Business Developments Plc being an Unsecured Loan Note holder in Newry Biomass Limited and Unsecured Convertible Loan holder in React
May 13th 2015
React Energy Plc, Newry Biomass No 1 Limited, Newry Biomass Limited, React Biomass Limited, Enfield Biomass Limited, Asdee Renewables Limited, Bridegreen Energy Limited, React Energy No 1 Limited, Plymouth Biomass Limited, Clay Cross Biomass Limited, Grass Door Limited, GG Eco Energy Limited, Reforce limited, Pluckanes Windfarm Limited, Reforce Energy (West) Limited, Atilow Wind Turbine Limited
EcoFinance (GLI) Limited
London Alternative Investment Market
The Members listed in Appendix III, including any person claiming to have the right to subscribe for shares under any option agreement or otherwise.
Carnmeen Energy Limited
A Nomad is a firm approved under licence by the London Stock Exchange and performs the regulator role under licence from the LSE and corresponds on a company’s behalf with the AIM.
‘Petition Date’ Means the date of the presentation of the originating notice of motion, being May 13th 2015.
‘Preferential Creditors’ Means a preferential creditor of the Company as set out at Appendix IV, whose claim would have ranked as preferential in a winding-up or receivership and each a “Preferential Creditor”.
‘Prepaid Equity Creditor’
This creditor of React set out in Appendix IV.
These Proposals and any modification thereof pursuant to the Act.
The period during which the Company is under the protection of the Court in accordance with the Act.
React Energy Plc
Newry Biomass Limited, Reforce Energy Limited, Grass Door Limited, Enfield Biomass Limited, Plymouth Biomass Limited
The secured loan note holder in React, Altair.
‘Secured Loan Note Holder’
Refers to the secured loan note holder re React Energy Ltd, Altair, as set out in Appendix IV.
‘Super Preferential Creditor’ means a super preferential creditor of the Company as set out at Appendix IV, whose claim would have ranked as super-preferential in a winding-up or receivership and each a “Super Preferential Creditor”.
‘Trustee’; means Ciaran Desmond of MacGuire Desmond Solicitors, Solicitor for the Examiner
Creditors whose liabilities have not been agreed.
‘Unagreed Creditors’ Debt’
The aggregate amount due by the Company to the Unagreed Creditors at the Fixed Date.
Creditors as set out in Appendix IV.
‘Unsecured Convertible Loan Note Holder’
Unless the context otherwise requires or unless otherwise specified:
2.1 Any reference to any statute, statutory provision or to any order or regulation shall be construed as a reference to that statute, provision, order or regulation as extended, modified, replaced or re-enacted from time to time (whether before or after the date of these Proposals) and all statutory instruments, regulations and orders from time to time made thereunder or deriving validity therefrom (whether before or after the date of these Proposals);
2.2 Words denoting any gender include all genders and words denoting the singular include the plural and vice versa;
2.3 All references to paragraphs and appendices are to paragraphs of, and appendices to, these Proposals;
2.4 Headings are for convenience only and shall not affect the interpretation of these Proposals;
2.5 Words such as hereunder, hereto, hereof and herein and other words commencing with “here” shall, unless the context clearly indicates to the contrary, refer to the whole of these Proposals and not to any particular paragraph hereof;
2.6 In construing these Proposals, general words introduced by the word “other” shall not be given a restrictive meaning by reason of the fact that they are preceded by words indicating a particular class of acts, matters or things, and general words shall not be given a restrictive meaning by reason of the fact that they are followed by particular examples intended to be embraced by the general words, and any reference to the word “include”; or “includingR21; is to be construed without limitation;
2.7 Any reference to “these Proposals” or any other document, or to any specified provision of these Proposals or any other document, is to these Proposals, that document or that provision as in force for the time being and as amended from time to time in accordance with the terms of these Proposals or that document;
2.8 Any reference to a person shall be construed as reference to any individual, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) or two or more of the foregoing;
Any reference to a person includes his successors, personal representatives and permitted assigns;
3.1 This document is being re issued to Members and Creditors following a number of important modifications to the proposed offer to Members and Creditors to consider, the impact of the changes on the outcome for those Members and Creditors, and to provide additional clarity over the scheme of arrangement.
3.2 This document presented is for React Energy Plc (the ‘Company’;) and references its related companies: Newry Biomass Limited, Reforce Energy Limited, Grass Door Limited, Enfield Biomass Limited and Plymouth Biomass Limited given the critical nature of React Energy Plc’s involvement with each individual company.
PART 2: Background
4. Presentation of Petition
4.1 On 13th May 2015, React Energy Plc & Related Companies (the “Companies in Examination”) presented a petition for Court protection and the appointment of an Examiner.
4.2 React had intended to issue its final results for the year June 30th 2014 in November 2014. Due to uncertainty surrounding its financial position the Board was unable to sign off on them as a going concern.
4.3 By order of Mr Justice McGovern of the High Court dated May 20th 2015 I was appointed Examiner to the Companies in Examination pursuant to the provisions of the Companies (Amendment) Act, 1990 as amended by the Companies (Amendment No 2) Act, 1999, now consolidated into the Company’s Act 2014.
5. Independent Accountants report and Formulation of Proposals
5.1 The Independent Accountant, Mr Gearoid Costelloe of Grant Thornton, Limerick, delivered his report to the Honourable court in accordance with Section 3(3B) of the Act, now Section 511 of the Companies Act 2014 in which he expressed his opinion that:
5.1.1 The confirmation and acceptance of a proposal which involved the securing of funding from an investor in order to pursue the expectations of the Companies in Examination including the Related Companies as outlined in Appendix I, retention of key employees, and satisfactory scheme of arrangement with Members and Creditors would give them a reasonable prospect of survival as a going concern and
5.1.2 Such scheme should be more advantageous to the Members and Creditors as a whole than a winding up of the Companies in Examination.
5.1.3 Such scheme may involve, dependent on the nature of investment, a combination of the following:
Conversion of loan notes to equity
Elimination of contingent Creditors and guarantees
Partial write down or restructuring in payment dates/terms of the existing Creditors in the balance sheet
Completion of successful negotiations with the Enfield and Newry Landlords in relation to both rent and guarantees
5.2 Regarding record keeping and internal controls, the Independent Accountant has provided me with further detail in respect of the review work he carried out on the books and records and the internal controls of the company, expressing satisfaction with same.
5.3 The business of React and the Related Companies in examination has been on hold pending the outcome of the Examination.
6. Company and Business
6.1 React Energy Plc (‘React’) was incorporated in Ireland (registered no 462861) on October 2nd 2008 and is listed on the London Alternative Investment Market (AIM).
6.2 The Company’s registered office is located at Building 1000, City Gate, Mahon, Cork.
6.3 The Related Companies also in Examination are Newry Biomass Limited, Reforce Energy Limited, Grass Door Limited, Enfield Biomass Limited and Plymouth Biomass Limited. An information memorandum is attached for each related company at Appendix I and an organisational chart is attached at Appendix II. Not all companies in the Group are in Examination.
6.4 Of the Related Companies, Reforce Energy Limited was incorporated in Ireland and the remaining companies were incorporated in the United Kingdom.
6.5 The principal activities of the Companies in Examination are the development and operation of energy infrastructure projects in the renewable energy sector in the Republic of Ireland, Northern Ireland and England. The main focus is the conversion of biomass or wood into clean electricity and heat, and the conversion of wind energy into clean electricity. Each Related company manages a class of project which is either biomass or wind related.
6.6 The Directors have significant knowledge of energy markets, relevant technologies, sourcing of material, project development and finance.
6.7 React’s business model is the delivery of biomass and wind sector projects from green field opportunities, through the planning, grid and construction phases into cash generating assets. In terms of its related companies it brings its intellectual capital and knowhow to bear so as to advance, in value and/or potential, the various renewable energy projects which it manages in these. A key function is the raising of sufficient capital for each project. In turn the AIM listing is a key asset of the company to enable such funding.
6.8 The Company is a development company which means it invests in developing sites that are suitable to build and operate power plants on. As such there is no income until the plants become operational and/or are sold. It targets significant equity stakes in projects post development. Its individual project objective for large biomass projects is an internal rate of return of in excess of 15%.
6.9 Due to the nature of the Companies in Examination’s activities various forms of non traditional finance in the form of mezzanine debt, loan notes and equity are required to fund the projects until they are cash generating, and finance is facilitated through the main Company, React. React has raised over Stg£20 million of debt and equity and currently has a portfolio of biomass and wind projects which are individually in the related companies. The largest project currently is biomass related in Newry Biomass Ltd.
6.10 The Company’s main investor is Farmer Business Development Plc (‘FBD’) who currently hold just under 20% of the shares in the company. It originally founded the Irish insurance company FBD Insurance and retains a significant shareholding in it. FBD has invested over Stg£15m in the Companies in Examination since 2008 and has significant interests in the 4MW Newry Biomass Project, the overall Group’s first operational biomass project which is currently in ‘care and maintenance’ mode, is not operational and requires significant further investment to complete a repowering of the project with a different technology provider.
6.11 The Company also has a secured lender, Altair, which is currently owed £2 Million which comprises £Stg1.5 million loan notes and accrued interest and €500,000 loan to fund the examinership and fees.
6.12 The Company was previously known as Kedco Plc and was listed on the London AIM as a broad based trading and development business in the renewable energy market. It had a domestic renewable energy solutions sales unit, an operational sawmill in Latvia, a project development unit focused on Biomass combined power and heat (CHP), Anaerobic Digestion technology and sale of Anaerobic Digestion technology solutions. In 2012 this company completed an operational, financial, board and management restructuring which involved a significant restructure of the balance sheet through the conversion of loans to equity and the sale of its interests in the Latvian project in order to position the company financially for the future and deliver shareholder value. Certain other unprofitable companies were liquidated which removed further non recourse debt from the balance sheet. Further operational restructuring took place in 2013 to reduce costs in the Companies in Examination.
6.13 In 2013 the Company changed its name to REACT Energy Plc (Renewable Energy and Clean Technology) to reflect the clear focus of the Company. It also completed a capital restructuring to reduce the number of shares in issue as small movements in price had a disproportionate effect. It was also believed that a low share price value would hinder the ability to attract new institutional investors. A consolidation of share capital would result in a more appropriate number of shares in issue for the Company’s size and make new ordinary shares more attractive to investors in the future. The effect was a reduction in number of ordinary shares by a multiple of approximately 50 and an increase in the price at which new ordinary shares traded by the same multiple.
6.14 From August 2014 React Energy Plc signed Heads of Terms with a strategic investor (EBIOSS Energy AD, a company listed on the MAB market on the Madrid Stock Exchange) for a technology transfer and funding in the sum of €6m over 2 years. This led to negotiations with the Enfield Landlord (Edmonton Property Company Limited), which was also a co-development partner, in relation to the terms of a lease agreement for the Enfield Biomass Limited Project. The company had entered into a collaboration agreement with the Foresight Group in relation to a 12MW Biomass Project in Enfield which involved a funding partnership with Foresight. A lease which was required was signed with the owners of the Enfield site in the amount of £54,000 per month from December 2013 which was guaranteed by React.
6.15 However the agreement with Foresight subsequently did not progress with knock on impact on the related funding. This has led to a postponement in the funds from the strategic investor. The lease remained payable and this liability is central to the Company’s current financial position. Foresight gave notice to the company to terminate the lease agreement which was initially contested by the company given the terms of its collaboration agreement.
6.16 During the course of the Examination the Investor (c.f. paragraph 9) and React have agreed a way forward to settle the dispute with Foresight. The investor is confident that negotiations can be reopened following the Examination process. The lease has been forfeited by agreement from November 2014.
6.17 In addition there was a delay in getting the new Newry Biomass project operational due to a technology issue which has delayed income generation from that source. On repowering with a different technology and on completion the project has the potential to generate turnover of c. £4 million with projected earnings before interest, tax, depreciation and amortisation of c. £2 million. The project is currently on care and maintenance pending additional funding which can only be resolved with the new investor once a scheme of arrangement is agreed (c.f. paragraph 9 ‘Investment217;)
6.18 In 2014 FBD invested £5.7 million in Newry Biomass Limited via a loan note to repay Ulster Bank debt. FBD are joint venture partners in the overall project. The recent investment gives them 51% of the economic rights with React entitled to 49% down from 92%. The new investor, EcoFinance is fully committed to this project.
6.19 Please see attached Appendix I for current projects in the related subsidiary companies in Examination.
6.20 The consolidated financial statements of React Energy Plc and subsidiaries show losses which reflect the start up nature of projects where there are intensive early capital costs. They also reflect delays due to technology issues. Given the nature of the business, and on the basis of satisfactory projects, the key issue at any one time for the Company is access to third party debt and equity investment.
7. Additional Important Information regarding Company AIM Listing
7.1 The Company is and remains regulated by AIM. I met the Company’s nominated advisor (the ‘Nomad’) represented by Shore Capital Group Limited who act on behalf of the stock exchange regulator. A Nomad is a firm approved under licence by the London Stock Exchange (“LSE”) and performs the regulator role under licence from the LSE and corresponds on a company’s behalf with AIM.
7.2 The support of the Nomad has been a key factor in facilitating React to negotiate an investment. The Nomad had no matters of concern to raise with me, and is working with the Company to maintain the Company’s AIM listing.
7.3 The Company informed AIM of its financial difficulties in December 2014 and requested a suspension of trading of the shares pending resolution of the issue. The impending expiry of suspension of trading and inevitable delisting of the shares on the London AIM necessitated an accelerated approach to the Examination in facilitating a proposal. In the ordinary course of events the suspension period would have expired on June 1st 2015 and the Company would have been delisted.
7.4 The Board and Investor (c.f. paragraph 9) have negotiated an extension to early July 2015 through the Nomad to enable a proposal to be formulated and agreement to become unconditional save for the approval of the Scheme by the High Court. However it remains critical that a decision on foot of the Examination is forthcoming at the earliest possible date in terms of the re-admission of trading of the Company’s shares on AIM.
7.5 The value of having a quotation on a recognised stock exchange is estimated to be up to £1 million based on the cost required to complete a listing. The listing allows investment to be raised more broadly given the regulated nature of it. In the opinion of the Investor, the Examiner and the Board a delisting would be detrimental to the business and in the matter of the Examination also to the Members and Creditors. This will become apparent in light of the proposals outlined below.
7.6 To complete the Scheme the Company and it’s advisors are required to make detailed submissions to AIM Regulators to achieve readmission of trading of its shares to the AIM market. This granting of readmission will be dependent on approval and implementation of the Scheme.
7.7 Central to regaining the AIM listing was the reconvening and completion of the postponed 2014 AGM, and shareholder approval of the 2014 annual accounts. The Company engaged with its auditors, Grant Thornton, over the weeks of the Examination to complete the audit work. The audit work was satisfactorily completed by the auditor and that completion was only dependant on the approval by the shareholders at the AGM. The AGM was held on June 23rd 2015 and the accounts as presented (as a going concern) with full disclosures were accepted by members subject to the final approval of the scheme of arrangement by the High Court.
PART 3: Proposals & Investment
8. Scheme Summary
I have formulated a Proposal in accordance with Section 18 of the Act (section 534 Company’s Act 2014) and nothing has arisen since my appointment to cause me to deviate from the opinions expressed by the Independent Accountant.
8.1 The classes of Members of the Company are specified at clause 11.3 and Appendix III and the classes of Creditors of the Company are specified at clause 13.3 and at Appendix IV.
8.2 For the purposes of these Proposals, the interest of a member of a company is impaired if:
8.2.1 The nominal value of its shareholding in that company is reduced;
8.2.2 Where it is entitled to a fixed dividend in respect of its shareholding in that company, the amount of that dividend is reduced;
8.2.3 It is deprived of all or any part of the rights accruing to them by virtue of its shareholding in that company; or
8.2.4 Their percentage interest in the total issued share capital of that company is reduced.
8.3 The interests of the Members of the Company will be impaired pursuant to the terms of the Proposals in that their percentage interest in the total issued share capital of the Company is reduced.
8.4 For the purpose of these Proposals, a Creditor’s claim against the Company is impaired should it:
8.4.1 Receive shares in React in lieu of payment of its claim at the date of presentation of the originating notice of motion (the ‘Fixed Date’), wherein on sale of those shares, it may or may not receive a return equal to the liability owing at the Fixed Date.
8.4.2 Be unable to trade these shares for a minimum of 12 months from the date of issuance.
8.4.3 In the case of Preferential Creditors, not have the use of the proposed dividend for 12 months.
8.5 Save for certain Revenue related classes the interests or claims of all other classes of Creditors of the Company, are being impaired pursuant to the terms of the Proposals, as explained in more detail at clause 12.
8.6 To the extent that certain of the Directors are Creditors of the Company in accordance with Section 23 (8) of the Act, now Section 540 (11) of the companies Act 2014, I confirm that the effect of the Proposals on the interests of the directors, whether as directors or as Members or as Creditors of the Company, or otherwise, is no more favourable than the effect on the like interest of other persons in their respective classes.
8.7 The Proposals provide equal treatment for each claim or interest of a member of a particular class unless the holder of a particular claim or interest has agreed to a less favourable treatment.
8.9 The Proposals provide in clause 17 for implementation.
8.10 No changes are proposed to the constitution of the company to facilitate its survival, and the whole or any part of its undertaking, as a going concern.
8.11 A statement of assets and liabilities (including contingent and prospective liabilities) of the Company as at the date of the Proposals is attached at Appendix V.
8.12 The estimated financial outcome of a winding-up of the Company for the Members and the classes of Creditors is also attached at Appendix V.
8.13 The interests of the company, its members and creditors are better served by the proposal rather than in wind up.
8.14 The Court has not directed that any specific provisions be included in the Proposals.
I have included in these Proposals all such other matters as I deem appropriate.
9.1 Subject to the approval of the Proposal an investment shall be made in React Energy Plc by EcoFinance (GLI) Limited (“EcoFinance8221;) which will facilitate React Energy Plc’s working capital requirements for the foreseeable future.
9.2 I sought proposals from the Board of Directors and from interested parties via newspaper adverts in the Sunday Business Post (May 24th 2015) and the Financial Times (May 26th 2015). There were 16 responses in total. Information was made available, provided via access to a data room which provided relevant financial, project outline, ownership and management data relating to the Companies In Examination.
9.3 The proposal put forward by EcoFinance (GLI) Limited (EcoFinance) which has been progressed in conjunction with Altair, the secured loan note holder provides funding for the foreseeable future for React in order to progress its various projects, and assists in the funding of individual projects, and provides the best prospect of recovery for Members and Creditors.
9.4 Eco Group (EcoFinance (the lending principal), EcoSource and Nirvana Capital) is currently involved in seventeen other renewable energy projects, holding from a range of 10 to 75 percent of the equity in each project, with total project values of c. £155,615,000. It engages and partners with existing developers wishing to build out consented renewable energy and energy efficient projects. This group also looks to develop its own projects. Thi group uses its technical and financial structuring skills to aid developers realise value by developing assets. It sources funds from a panel of 20 other lenders and a range of institutional investors. The projects are in the UK and Ireland.
9.5 The investment is as follows:
9.5.1 A secured loan with a five year term (the “Loan”) in the amount of £900,000 (c€1,250,000) to React Energy Plc, the drawdown of which is subject to the scheme being approved by the Members and Creditors and the High Court. The loan facility carries a fixed rate of interest of 15% per annum, and will be secured by way of an all monies mortgage debenture from React, including share pledges over React’s equity holdings, over React’s assets, together with fully interlocking corporate guarantees and indemnities supported by all monies mortgage debentures from all the companies within the Group to include share charges over any shares held by those companies.
9.5.2 The Loan will be repaid by way of bullet payment of capital on or before an anniversary of 60 months from the date of drawdown of the facility.
9.5.3 Each of EcoFinance and Altair are entitled to exercisable rights determined by the formula: nine million x (average share price minus Stg10p) where the average share price is the average of the Company’s closing price over the 60 days following recommencement of trading of React’s shares. In certain circumstances, the average share price will be the sterling equivalent of the nominal value of React’s shares at the relevant time. In each case, the debt owed by React as a result of the rights will be discharged by React by the issue of ordinary shares, fully paid up, at the average price. The value of this right is subject to a cap of £600,000 and a floor of £200,000. If, however, the average share price is less than the nominal value of React’s shares (Eur 10c) then no cap will apply. For illustrative purposes, depending on the average share price, where the value is £600,000 then approximately 3,000,000 ordinary shares will be issued to each of EcoFinance and Altair.
In addition thirty five million, three hundred thousand warrants at an exercisable price of £0.10p per share are to be granted to each of Alchemy Capital Limited, a company related to EcoFinance on drawdown of the Loan.
React Energy Plc will grant 3,150,000 warrants to an associated company of Altair, Origen Capital, at a price of Stg 10p per share.
9.5.4 EcoFinance will be entitled to appoint one new director to the Board of React.
9.5.5 The loan is subject to a £45,000 arrangement fee with all costs to the borrower.
9.5.6 The loan will be drawn in one tranche.
9.6 The Investment is conditional only on the approval by the High Court of the Proposals herein.
10. Prospects of Survival
10.1 I believe that the investment and proposals represent the only option for the survival of the business. This is based on a the following premises: The experience and know how of the Investor EcoFinance (GLI) Limited, the working capital being made available, the continuation of Gerry Madden in the role of the Chief Executive officer, the support of the Secured loan note holder (Altair) and the other major unsecured investor (Farmer Business Developments Plc) and the prospects for the projects.
10.2 The nature of the business carried out by the Group is that the going concern cycle extends over a longer period than a trading business with measurable monthly cash flows and costs. The business model is that each of the individual companies contributes to the overall Group. All monies raised by way of finance or investment are paid through React and in turn distributed via intercompany loans to enable the individual projects. In that context the Group should be viewed as a whole in terms of capability to attract investment/funding.
10.3 The opinion of the Independent Accountant was that each of React Energy Plc, Newry Biomass, Reforce Energy Limited, Grass Door Limited, Enfield Biomass Limited and Plymouth Biomass Limited had reasonable prospects for survival and with the involvement of an investor in collaboration with the secured loan note holder I believe that this opinion holds except now for Enfield Biomass Limited.
10.4 The working capital facility of £900,000 (€1,250,000) is sufficient to fund React Energy Plc for a minimum of 12 months while the projects are being progressed.
10.5 The Chief Executive is continuing in his role by agreement with the investor and secured loan note holder in order to ensure continuity in the projects. The other current directors will, over a period of time and in consultation with the Company’s Nomad, resign and will be replaced by nominees of the Investor and Secured Loan Note Holder and independent non executive directors.
10.6 The secured loan note holder (Altair) and the major unsecured convertible loan note holder (FBD) have confirmed their willingness to support the process.
10.7 The current positions of the projects are outlined in Appendix I. The Newry Biomass Limited project is the immediate focus of attention and with the assistance of EcoFinance the expectations are that it will be operational within twelve months. The project on full completion is expected to generate 4MW of power and is expected to generate turnover of c. £4,000,000 and earnings before interest, tax, depreciation and amortisation of c. £2,000,000.
10.8 With respect to the lease in the name of Enfield Biomass Limited, it has been agreed with the Enfield Landlord that this lease has been forfeited with effect from November 2014 and accordingly the guarantee falls away from this date.
10.9 With regards to Enfield Biomass Limited, while the lease is now revoked and legal actions are discontinued on both sides, it is intended to re-engage with Foresight if the scheme is approved and negotiate an equity participation in the future project by virtue of the fact that the planning and grid connection is in the name of Enfield Biomass Limited.
10.10 A clear risk to React in terms of sustainability was its position of guarantor to leases in the name of Newry Biomass Limited totalling £200,000 per annum and Enfield Biomass Limited totalling £648,000 per annum.
10.11 By virtue of renegotiation with the Newry Landlord and agreement with the Enfield Landlord by the Investor, these contingent liabilities will no longer exist post Examination.
PART 4: Treatment of Members and Classes of Creditors
11. Treatment of Members
11.1 Should the Court confirm the Proposals; the Proposals shall be binding on the Members and the Company.
11.2 No changes to the Company’s constitution are necessary to allow for the implementation of these Proposals (c.f. clause 17).
11.3 The Company has issued share capital of 30,669,522 new ordinary Shares, with the Members’ identities set out at Appendix III. Their percentage interest in the total issued share capital of that company is reduced.
11.4 On the Effective Date, the Company shall issue 25,786,831 Ordinary Shares to Creditors of React and its Related Companies to the value of €3,939,656. A further 11,402,360 shares will issue on a phased basis in respect of the unsecured convertible loan note holder to the value of €1.742 million.
12.1 Clause 12.3 below and Appendix IV lists each class of Creditor.
12.2 The date by reference to which payments to Creditors shall commence under these Proposals shall be either:
12.2.1 In respect of the Creditors listed in Appendix IV with respect to the amounts set out as due to those Creditors in this Appendix, the Effective Date as set by the Court;
12.2.2 In respect of those Creditors to which clause 15 relates, the Determination Date.
12.3 Appendix IV contain listings, provided by the Company to the Examiner, of the names of Creditors of the Company as at the Fixed Date compiled from the books and records of the Company.
13. Treatment of Creditors
13.1 The treatment proposed in these Proposals with respect to each class of Creditors is set out below. Where the Court confirms the Proposals (with or without modification) the Proposals shall be binding on the Creditors.
13.2 Save as provided herein, the following should apply.
13.2.1 No interest, penalties or costs (over and above the sum specified at Appendix IV or the sum determined in accordance with these Proposals) shall be payable by the Company to any Creditor.
13.2.2 The payments provided for in these Proposals shall be in full and final settlement of all claims and entitlements of each Creditor to which a payment is made.
13.3 The following are the classes of Creditors of the Company and are listed at Appendix IV
Secured Loan Note Holder
Unsecured Convertible Note Holders
Prepaid Equity Creditor
Super Preferential Creditor
Contingent Guarantee Creditors
13.4 The Secured Loan Note Holder in React Energy plc being Altair whose indebtedness comprises a 9% Loan Note amounting to £1.5 million, Loan Note interest, fees and a separate €500,000 Loan is impaired. The existing secured debt will be refinanced by way of a new 7.5% Stg£2 million Convertible Secured Loan Note and secured by the same security package granted in favour of EcoFinance. This will be governed by an inter creditor deed under which the £900,000 EcoFinance loan and security plus interest and costs shall rank in priority to the Altair Loan Note and security plus interest and costs. Under the terms of the new Loan Note Altair has the right to convert £1 million into ordinary shares at £0.10p. Altair will also be entitled to appoint 1 new director to the board of React. It has exercisable rights to 3,529,412 shares based on the share price movement on the same basis as outlined in 9.5.3 above.
13.5 The Unsecured Convertible Loan Note Holder in React Energy Plc, being FBD with existing conversion rights amounting to €1.742 million is impaired. It will convert to shares at £0.11p per share on a phased basis resulting in 11,402,359 additional shares being issued by React. These shall be locked in for 12 months from the Effective Date whereon the owner may freely trade the shares.
13.6 The liability due to the Prepaid Equity Creditor shall be converted to shares in React energy plc at a share price of £0.11p per share amounting to 1,198,211 additional shares being issued by React. These shall be locked in for 12 months whereon the owner may freely trade the shares.
13.7 The Super Preferential Creditor shall receive 100% of its debt as set out in Appendix IV within 30 days after the Effective Date. The Super Preferential Creditor is not impaired by these proposals.
13.8 The liability to the Preferential Creditors shall be paid a dividend by way of a cash amount on the 12 month anniversary of the Effective Date equivalent to the sale of a number of shares which would have equated to their debt converted at £0.11p per share in line with the closing price when shares were suspended.
Ordinary shares equivalent to the total preferential debt will be issued to the Trustee at a share price of £0.11p per share. On the 12 month anniversary date the Trustee will dispose of the shares in the market and distribute the proceeds to the Preferential Creditors having accounted for any and all taxes then falling due
The Preferential Creditors shall waive any and all rights and claims of any description whatsoever, subrogated or otherwise, they may have against the Company howsoever arising including without limitation arising out of any agreements entered into with the Company or otherwise howsoever.
13.9 The pre petition liability due to the Contingent Guarantee Creditor will have past agreed liabilities, payable from the relevant companies where liability arose, converted to shares at £0.11p per share, which will be subject to an orderly market agreement after which the owner may freely trade the shares.
For the avoidance of doubt and where applicable, the amount payable by the relevant company will include any liabilities arising between the Fixed Date and the Effective Date. React is released from any guarantees that it has entered into.
13.10 The liability due to Unsecured Creditors shall be converted to shares at £0.11p per share in line with the closing price when shares were suspended, and will be locked in for 12 months whereon the owner may freely trade the shares.
Intercompany creditors will not receive shares.
13.11 The exchange rate used for the purposes of this report is £0.72/€1.
14. Effect of Proposals on Company Value
14.1 The Company has authorised share capital of 200,000,000 ordinary shares of €0.010c each. At the Fixed Date there were 30,669,522 shares in React Energy Plc in circulation.
14.2 It is proposed that a total of 25,786,831 ordinary shares will issue in lieu of debt/liabilities of Creditors of React and its related companies; Newry Biomass Limited, Enfield Biomass Limited, Reforce Energy Limited, Grass Door Limited and Plymouth Biomass Limited. A further 11,402,360 ordinary shares shall issue on a phased basis to FBD in relation to its Convertible Loan Note in React.
14.3 The overall dilution in percentage interest in existing share capital will be 46 per cent on ordinary shares. When FBD fully convert the dilution will be 55%.
14.4 Additional warrants, exercisable rights and conversion rights for 55,508,824 shares if exercised will have the effect of 20 per cent additional reduction in percentage interest in existing overall share capital. However, in order to effect this, an additional £5,675,000 will have to be invested in shares in the company by the holders of the warrant and conversion rights.
14.5 At the date the Company listing was suspended the shares were trading at £0.11p. The market could be said to value the company at £3.37 million or €4.69 million. At the time there were many debt issues hanging over the Company and the market value had become depressed leading up to the suspension. The current (suspended) share price of £0.11p represents a very significant diminution in value for all current equity investors. By way of comparison, in the 24 month period immediately prior to suspension the Company’s shares traded between £0.65p and £0.20p.
14.6 Post Examination and implementation of the scheme the hope is that the market will place a more positive value on the overall enterprise. The Investor hopes the company will regain in the shorter term its last listing value of £0.11p per share, or €0.15c. If this were to happen the market could be said to initially value the company at £6.18 million based on the amount of shares in issue. However this is speculative. There is no guarantee as to the market perception save for views taken on the involvement of the Investor, the agreement of current loan note holders, the availability of investment, and subsequent performance of the projects.
14.6 The estimated balance sheet value of the Company post Examination is £395,000 net of all liabilities. This reflects development assets whose true value lies in their potential which value AIM investors may determine for themselves.
Part 5: Determination of Claims
15. Determining the Claims of Unagreed Creditors
15.1 In order to implement the Proposals and in the interests of the Company and the Creditors, taken as a whole, it is proposed to resolve the claims of Unagreed Creditors as set out in this paragraph 15. A list of the Unagreed creditors is listed at Appendix IV.
15.2 The Company has sought claims from the Creditors which have in the majority been agreed. Some remain to be resolved. An Unagreed Creditor may forward to the Company, by registered post, addressed to the Company Secretary, within 21 days of the Effective Date, a proof of claim setting forth the amount which it believes should be included as its claim for the purposes of the Proposals and the basis for the claim including supporting documents as applicable.
15.3 In the event that an Unagreed Creditor does not notify the Company of its claim, in accordance with the provisions as set out above that Unagreed Creditor shall be deemed to have submitted a claim for the amount included in the Company records and set out in the letter accompanying the Proposals and the Effective Date shall be deemed to be the Determination Date for such claim.
15.4 In the event that an Unagreed Creditor is not listed in Appendix IV and that Unagreed Creditor does not notify the Company of its claim, in accordance with the provisions as set out above, such Unagreed Creditor’s claim shall be deemed to be zero.
15.5 The Company shall notify an Unagreed Creditor, by registered post, within 14 days after receipt of its claim whether it accepts the claim or not. In the event that the Company disputes the claim the Company’s notice shall be deemed to be a Dispute Notice and it shall specify the quantum that the company in Company, acting in good faith, considers should be admitted.
15.6 An Unagreed Creditor may, within 14 days of the issue of a Dispute Notice submit the said claim to the Expert for determination.
15.7 In the event that an Unagreed Creditor does not submit its claim to the Expert within 14 days after the issue of a Dispute Notice that Unagreed Creditor shall be deemed to have submitted a claim for the amount included in the Dispute Notice and will be admitted as a creditor in that amount and the deemed Determination Date shall be the 14th day after the issue of the Dispute Notice.
15.8 The Company and the Unagreed Creditor may negotiate a settlement of the claim at any time prior to the decision by the Expert. In such case the date of settlement shall be the Determination Date.
15.9 The Expert shall, upon receipt of the Unagreed Creditor’s claim furnish the Company with a copy of the claim. The Company may submit a response to the Expert within 14 days after receipt of such copy claim. The Expert shall not deliver his determination before the expiry of that period of 14 days.
15.10 The Expert shall be entitled, but shall not be obliged, to seek further information as he at his sole discretion deems necessary prior to making his determination and the Expert shall be entitled to stipulate the necessary time deadlines for the provision of such information.
15.11 The Expert shall, not later than 75 days after the Effective Date or such later date as may be agreed between the Company, the Unagreed Creditor and the Expert, notify both the Unagreed Creditor and the Company of his determination of the amount, if any, for which the Unagreed Creditor’s claim shall be admitted. The date of the Expert’s determination shall be deemed to be the Determination Date.
15.12 The Expert’s determination shall be final and binding on both parties.
15.13 Upon determination by the Expert in respect of the quantum of a liability, payment in respect of the liability will be made in accordance with the provisions contained herein for payment to the class of Creditor to which the said Unagreed Creditor belongs.
15.14 The Company and the Unagreed Creditor shall each be liable for 50% of the costs and expenses of the Expert in connection with his determination.
16. Waiving of Creditor Rights
16.1 The creditors shall be deemed to have waived any rights subrogated or otherwise that they may have against the Company arising out of any agreements or guarantees entered into the Company as at the Fixed Date.
16.2 With effect from the Effective Date no Creditor, including contingent and prospective creditors, shall have any right or claim of any description whatsoever against the Company arising out of or connected with any contract, engagement, circumstance, event, act or omission of the Company prior to the Fixed Date, save as provided in these Proposals.
16.3 The payments to the Members and Creditors provided for in paragraph 7 and 13 herein pursuant to an order of the Court confirming the Proposals shall be in full and final settlement of all obligations of the Company to the Members and Creditors as determined in accordance with these Proposals.
Part 6: Implementation
17. Implementation of Proposal
17.1 At the confirmation hearing under Section 24 of the Act/ Section 541 of the Companies Act 2014 I intend to seek a series of orders for confirmation and implementation of the Proposal on the basis that the Effective Date will be 21 days after the Confirmation Date.
17.2 An AGM was held on Tuesday 23rd June in order to sign off accounts as a going concern, outline in broad terms the scheme and seek agreement to increase directors’ authority to allot shares and disapply pre-emptive rights to enable the transaction to be completed. All resolutions were passed unanimously by the members present.
17.3 As the implementation of certain matters under the scheme is referable to the Effective Date, the Company has undertaken, within seven working days after the Confirmation Date, to send notice by post confirming the Effective Date to every party who is a creditor of the Company or who has otherwise received notice from the Examiner of the various meetings of Members or Creditors.
17.4 These Proposals cover all of the Company’s liabilities whether or not the liabilities have been acknowledged or recognised including contingent or prospective liabilties. Without prejudice to the right of the Company to perform and seek performance of its contractual rights and entitlements existing at the Fixed Date, no Creditor or Member shall have any right, interest or claim of any description whatsoever against the Company, irrespective of when due or payable, arising out of or connected with any contract, engagement, circumstance, event, act, obligation, liability or omission of the Company prior to the Fixed Date save as provided in these Proposals.
17.6 The investment agreement and all supporting documents will be completed.
17.7 Shares at a conversion rate of Stg 11p per share will be issued to Companies’ in Examination Creditors for the amount of c. €5.66 million at an exchange rate of £0.72/€1. Further shares in respect of the Unagreed Creditors, in the amount of €163,634, may also issue in due course.
17.8 Nothing in these Proposals shall affect or limit the rights of the Company to seek full payment or contribution from any person.
Part 7: Miscellaneous
18.1 The remuneration, costs and expenses of the Examiner will be paid in accordance with section 29 of the Act, now Section 554 of the Companies Act 2014 in priority to all other debts or payments under the Scheme and shall be paid in full on or before the Effective Date.
18.2 The Examiner shall have no personal liability in relation to these Proposals or his actions as Examiner or the conduct of the Examination and without prejudice to that and any other exclusion of personal liability if the Examiner has in the performance of his functions under the Act, assumed, or if in future during the Protection Period he were to assume personal liability on any contracts as provided for in Section 13(6) of the Act, now Section 532 (6) of the Companies Act 2014 the Examiner shall have a right to an indemnity out of the assets of the Company in respect of such personal liability. The Examiner's right to be paid on foot of any indemnity or indemnities in respect of any obligation entered into by him in the performance of his functions shall rank in priority to the payment of any part of the debt due to the Creditors and shall continue notwithstanding the ending of the Protection Period.
18.3 The Examination has been funded by Altair Global Investment Limited. The final Examiner time charge fees for this company are estimated to be €32,000 plus vat plus outlay of €5,029 for React and the Examiner’s associated legal fees are estimated at €25,000 plus Vat.
19. Foreign Currency Conversion
19.1 Creditors’ claims denominated in currencies other than € as at the Fixed Date will be converted to € at the European Central Bank References Rates maintained by the Central Bank & Financial Services Authority of Ireland at the Fixed Date.
20. Non-admission of Claims
20.1 Nothing contained in these Proposals shall constitute an admission or acknowledgement of liability in respect of any claim, which has not otherwise been admitted by the Company.
21. Guarantees and Section 25A of the Act
21.1 It shall be a matter solely for Creditors as to whether any notices are required to be given by them pursuant to Section 25A of the Act, now Section 549 of the Company’s Act 2014 or whether anything else is required of them in order for them to subsequently enforce the obligation of a third party in respect of a liability in respect of a debt of the Company.
22.1 The Expert shall act as an expert and not as an arbitrator and his determination shall be final, binding and conclusive in all respects and no dispute in relation to the rights or claims of Creditors, submitted for decision by the Expert, shall be litigated or arbitrated and nor shall the provisions of the Arbitration Acts, 1954 to 1988 be applicable.
23. Changes in Management or Direction of the Company
23.1 The Company to date has been run primarily by the directors Mr Gerry Madden, Mr Brendan Halpin, Mr Eddie Barrett and Mr Dermot Patrick O’Connell. The make up of the Board will now change with Members representing Eco Finance, and Altair joining Gerry Madden as Chief Executive Officer with another independent appointee yet to be identified. Given the respective investors experience in this sector I believe the board will be enhanced by their presence.
24. Changes in Constitution of the Company
24.1 I do not recommend any changes to the constitution. |