Exit from Administration

RNS Number : 5154V

Redx Pharma plc

03 November 2017

 

3 November 2017

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY THE COMPANY TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THE ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.

REDX PHARMA PLC

("Redx" or "the Company")

Completion of administration, Joint Administrators vacate office, Company returned to control of Board of Directors

Redx, the drug discovery and development company, announces that Jason Baker and Miles Needham of FRP Advisory LLP, the former joint administrators of the Company and of its subsidiary, Redx Oncology Limited ("Oncology") (together, the "Companies") yesterday filed their Final Report in the administrations of the Companies at Court and with the Registrar of Companies, in accordance with the Insolvency Act 1986 and the Insolvency Rules 2016 (the "Final Report"), bringing the administrations to a close.  With effect from the time of filing the Final Report, the joint administrators vacated office, and the Companies have now resumed trading under the control of their respective directors. 

The Board expects to make a further announcement shortly, and will also write to all shareholders, regarding the strategy for the Company going forwards.

The Final Report, including appendices, is available to view on Redx's website at www.redxpharma.com.  The contents of the Final Report, without appendices, are set out below.

For further information, please contact:

Redx Pharma Plc Iain Ross, Chairman	T: [phone]
The Joint Administrators Contact: Chris French James Rossiter	T: + 44 203 005 4000
Cantor Fitzgerald Europe (Nominated Adviser & Joint Broker) Philip Davies	T: [phone]
WG Partners LLP (Joint Broker) Claes Spång / Chris Lee/ David Wilson	T: [phone]
FTI Consulting	T: [phone]
Simon Conway/Stephanie Cuthbert

About Redx Pharma Plc

Company website: redxpharma.com

Redx is focused on the discovery and development of proprietary, small molecule therapeutics to address areas of high, unmet medical need, principally in cancer, infection and immunology, providing a pipeline of assets to larger and emerging companies. By improving the characteristics of existing drug classes to create highly differentiated, novel, best-in-class drugs, Redx has already established a broad portfolio of proprietary drug programs.

Redx Pharma Plc and

Redx Oncology Limited (both in Administration)

The Joint Administrators' Final Report for the period 24 May 2017 to 2 November 2017

2 November 2017

Contents and abbreviations

Section            Content

1.                     An overview of the Administrations

2.                     Progress of the Administrations in the Period

3.                     Outcome for creditors

4.                     Joint Administrators' pre-appointment costs

5.                     Joint Administrators' remuneration, disbursements and expenses

Appendix         Content

A.                     Statutory information regarding the Companies and the appointment of the Joint Administrators

B.                     Form AM21 - Notice of end of administration

C.                     Schedule of work

D.                     Details of the Joint Administrators' time costs and disbursements for the Period

E.                     Receipts and payments accounts for the Period

F.                      Statements of expenses incurred in the Period

The following abbreviations may be used in this report:

BTK                                          Bruton's Tyrosine Kinase

FRP Advisory                           FRP Advisory LLP

HMRC                                       HM Revenue & Customs

LCC                                          Liverpool City Council

QFCH                                        Qualifying Floating Charge Holder

SIP                                           Statement of Insolvency Practice

The Companies                        The entities in Administration, being Redx Pharma Plc and Redx Oncology Limited

The Group                                Collectively the following entities:

Anti-Infectives                        Redx Anti-Infectives Limited

Immunology                             Redx Immunology Limited

Oncology                                 Redx Oncology Limited (in Administration)

Pharma                                    Redx Pharma plc (in Administration)

The Insolvency Rules              The Insolvency (England and Wales) Rules 2016

The Joint Administrators        Jason Daniel Baker and Miles Andrew Needham of FRP Advisory LLP

The Period                                          24 May 2017 to 2 November 2017

 

1.       An overview of the Administrations

The proposals

The Joint Administrators identified that the objective of the administrations, as set out in the proposals approved on 24 August 2017, was to rescue the Companies as going concerns.

The objective was to be achieved following a period of trading and marketing of the Group's intellectual property ("IP") assets under the control of the Joint Administrators.

Pursuant to Paragraph 52(1)(a) of Schedule B1 to the Insolvency Act 1986, the Joint Administrators were not required to seek a decision from the Companies' creditors to approve the proposals.  As such, they were automatically deemed to have been approved on 24 August 2017. Certain additional resolutions regarding remuneration, disbursements and release from liability required direct approval by creditors via a decision procedure and these resolutions were unanimously approved by creditors on 29 August 2017.

It was anticipated that the Companies would exit from administration once the Joint Administrators were of the view that they could, in the reasonable opinion of the Joint Administrators, continue as going concerns.

Implementation of the proposals

The sale of certain parts of the Group's research program for the development of small molecules each of which having an intended primary mode of action as a BTK inhibitor ("BTK Program") was completed to Loxo Oncology Inc. ("Loxo") on 28 July 2017 for US$40m. The consideration was paid in a single upfront cash payment.

This comprised a sale of whatever rights, title and interest the Companies had in the patents and IP relating to the BTK program. No further royalties, licence fees, milestones or other payments are due to the Companies under the sale agreement.  No representations or warranties have been given to Loxo under the assignment agreement. Redx is subject to non-competition provisions for three years following the sale relating to the BTK program.

Full details of that sale were provided to creditors shortly after completion of the sale in the Joint Administrators' proposals.

The Companies continued to trade under the control of the Joint Administrators for the duration of the administrations to allow the IP to be marketed and sold as well as to continue the trade of the Companies to ensure that they could exit the administrations as going concerns. Details of the trading results are shown in the trading statement incorporated into the cumulative receipts and payments account at Appendix E.

2.       Progress of the Administrations in the period

Work undertaken during the administrations

I attach at Appendix C a schedule of work undertaken during the Period. Appendix C and the information in this section should be read in conjunction with the proposals.

Following approval of the Joint Administrators' proposals, the Joint Administrators continued to conduct the administrations to achieve the purpose of the administrations.

Creditors will recall that, pursuant to the assignment agreement with Loxo, the Joint Administrators agreed that they would not file or apply for the termination of the administrations until the earlier of (1) the Companies having complied with their obligation to provide certain data relating to the BTK Program to Loxo, or (2) 12 weeks having passed from the date of the assignment agreement. This date passed on 20 October 2017. 

The Joint Administrators have continued to trade the Companies during this period to ensure the continuity of the business. Their staff have liaised with suppliers and provided undertakings to allow the continued supply of goods and services to the Companies.

In order to finalise the Companies' tax affairs for the Period, the Joint Administrators have also taken advice from two firms of tax accountants (Crowe Clarke Whitehill and Shipleys LLP) and a specialist tax counsel with insolvency expertise (Philip Ridgway of Temple Tax Chambers).

Accounting for the proceeds of sale

The proposals detailed the realisation of the funds from the sale of the BTK Program as an asset of Pharma following indications from the directors upon the Joint Administrators' appointment, including in the statements of affairs submitted by the directors, that Pharma was the owner of all IP relating to the Group's pharmaceutical discoveries. 

Upon further investigation, however, it has transpired that this is not the case.  Ownership of the IP was not documented by the Group. The IP was also not capitalised in any of the Group's accounts. The Joint Administrators have, however, identified that the Group's historic tax returns have all been prepared on the basis that the IP was owned by the subsidiaries. This is reflected in the trading of the Group, whereby all of the research and development activities of the Group have been undertaken by the relevant subsidiary, funded by loans from Pharma.

As a result of the further investigations carried out by the Joint Administrators, the logical conclusion has been reached that the IP is in fact owned by the subsidiaries, not Pharma and therefore the attached Receipts and Payments accounts have been amended to reflect the sales proceeds in Oncology and subsequent repayment of LCC from the same company. The amount of £1 has been allocated to patent sales within Pharma to reflect the transfer of the patents from Pharma to Loxo pursuant to the assignment agreement. Whilst the patents were registered in Pharma's name, it is apparent to the Joint Administrators that the beneficial ownership resided in Oncology, who, amongst other things, paid the patent fees.

As part of their investigations into the matter, the Joint Administrators also spoke to the former company secretary, who dealt with the formation of the group structure. His understanding was that the Group's structure was created to enable a division to be sold off if desired (which would only be possible it is held its own IP).  This happened with RedX Crop Protection Limited (formerly a subsidiary of Pharma) in 2014/2015.

Crowe Clarke Whitehill were instructed to prepare the corporation tax returns for the Period and advised that following the application of various reliefs available to the Companies no corporation tax would be payable. The basis upon which the returns have been prepared has also been reviewed by tax counsel, who advised that the methodology applied is correct and the reliefs utilised are available. The advice of tax counsel was required in light of the highly unusual circumstances of the administrations (in that the Companies have been rescued as going concerns and returned to the control of the directors) and given HMRC nevertheless has the ability to open an enquiry into and challenge the tax returns for the Period for one year after the returns are filed by the Joint Administrators, shortly prior to exit. The Joint Administrators have therefore obtained directions from the Court that the Joint Administrators can vacate office and be relieved from personal liability arising in respect of claims from HMRC in the unlikely event that the Companies became liable to pay tax on the disposal of the BTK Program in the future and are unable to pay it.

Payment of creditor claims

An outstanding intercompany loan of £19,181,415.53 was repaid from Oncology to Pharma following the reallocation of the sale proceeds. This allowed for sufficient funds to be present in both Companies to fund the ongoing trading costs and allow all classes of creditor to be repaid in full.

LCC were repaid in full by Oncology pursuant to their security, while preferential creditors were also paid in full.

Given the back stop date for exit agreed with Loxo, and given the Companies were in a position to settle all creditor claims in full, the Joint Administrators sought and obtained an order on 22 August 2017, that they be permitted to pay a dividend to unsecured creditors.

Creditors who have proven their debts in these proceeding have subsequently been paid in full together with their statutory interest entitlement.

The Joint Administrators have finalised the administration trading transactions and paid all suppliers in full where invoices have been received prior to exiting administration. Any suppliers with outstanding invoices from the trading period are still entitled to receive payment from the respective company following the exit from administration and they should contact the Group's finance team at [e-mail] with details of any outstanding invoices for payment.

Within the Period the Joint Administrators have also complied with their general day to day statutory duties including all reporting responsibilities as well as internal review processes.

Whilst the Companies were in a position to settle all creditor claims in full, the Joint Administrators crucially had to satisfy themselves that the Companies were able to continue as going concerns following the exit of the administrations. The Joint Administrators and their staff have worked very closely with senior management to understand the post administration business plan and financial forecasts to ensure that the Joint Administrators are able to properly satisfy themselves as to the going concern status of both Companies.

Attached at Appendix E are receipts and payments accounts detailing transactions for the Period.

 

Investigations

Part of my duties included carrying out proportionate investigations into what assets the Companies have, including any potential claims against directors or other parties, and what recoveries could be made. I have reviewed the Companies' books and records and accounting information, requested further information from the directors, and invited creditors to provide information on any concerns they had regarding the way in which the Companies' business had been conducted.

Further details of the conduct of my investigations are set out in the schedule of work attached at Appendix C. I can confirm that no further investigations or actions were required.

 

Exiting the administration

 

In accordance with the proposals, the Joint Administrators are of the view that the objectives of the Administrations have been achieved following the realisation of sufficient assets to discharge creditor claims and to put the Companies in a position whereby they can, in the reasonable opinion of the Joint Administrators, continue as going concerns. Notices have been sent to the Registrar of Companies and the Court in accordance with Paragraph 80 of Schedule B1 to the Insolvency Act 1986 to bring the administrations to an end and return the Companies to the control of the directors.

At the point that the Companies are returned to the control of their directors, it is the understanding of the Joint Administrators that the directors of Pharma will seek the lifting of the suspension of Pharma's shares from trading on AIM. 

3.       Outcome for creditors

Initial estimated outcome for creditors

The Proposals anticipated that there would be sufficient funds to settle all creditor claims in full across all classes.

Outcome for secured creditor

LCC were owed approximately £3.5m by Oncology under a debenture dated 1 June 2012 and registered with Companies House on 12 June 2012. The debt was cross-guaranteed by Pharma and secured by a fixed and floating charge over Pharma's assets.

Following the sale to Loxo, the debt to LCC was settled in full by Oncology, including interest, and all security has been released.

This outcome was in line with the Proposals.

Outcome for preferential creditors

The preferential creditors in Pharma totalled £2,400, being the preferential element of the directors' arrears of pay, as calculated in accordance with legislation.

No preferential claims were anticipated or received in Oncology.

Preferential creditors were repaid in full on 5 October 2017 and this outcome was in line with the Proposals.

Outcome for unsecured creditors of Pharma

The Joint Administrators have received claims totalling £8,199,016.11 from unsecured creditors who have proved their debts in these proceedings. Of this amount, claims totalling £7,633,647.14 were agreed by the Joint Administrators.

A first and final dividend of 100 pence in the pound was declared and paid to agreed unsecured creditors on and after 4 October 2017.

Statutory interest was paid to all proven unsecured creditors on 16 October 2017 in accordance with Rule 14.23 of the Insolvency Rules.

Outcome for unsecured creditors of Oncology

I have received claims totalling £1,042,700.57 from unsecured creditors who have proved their debts in these proceedings. Of this amount, claims totalling £433,897.22 were agreed by the Joint Administrators.

A first and final dividend of 100 pence in the pound was declared to Oncology's unsecured creditors on 4 October 2017.

An additional agreed claim totalling £172,903.80 was admitted after the final date for proving but paid in full on 10 October 2017 pursuant to Paragraph 66 of Schedule B1 to the Insolvency Act 1986 as it was determined that this payment would assist the achievement of the purpose of the administration.

Statutory interest was paid to all proven unsecured creditors on 16 October 2017 in accordance with Rule 14.23 of the Insolvency Rules.

No further unsecured dividend

Pursuant to the Insolvency Rules no further dividend will be declared to the preferential and/or unsecured creditors of the Companies as all creditors who have proved in these proceeding have been paid in full.

Any creditor that has not proven their claim in these proceedings is still entitled to payment of valid outstanding invoices following the exit from administration and should contact the Group's finance team at [e-mail] with details of any outstanding invoices.

Prescribed part

The prescribed part is a carve out of the funds available to the holder of a floating charge which is set aside for the unsecured creditors in accordance with Section 176A of the Insolvency Act 1986.  The prescribed part only applies where the floating charge was created on or after 15 September 2003 and the net property available to the floating charge holder exceeds £10,000.

The prescribed part was not applicable in this matter because sufficient funds have been realised to repay all classes of creditors in full.

4.       Joint Administrators' pre-appointment costs 

Details of the pre-appointment costs totalling £9,387.63 incurred by the Joint Administrators in respect of Pharma and £1,712.50 in respect of Oncology, were included in the Proposals. These costs were approved by a resolution of the creditors on 29 August 2017 and have been paid as an expense of the administration.

5.       Joint Administrators' remuneration, disbursements and expenses

Joint Administrators' remuneration

Following circulation of the proposals the unsecured creditors passed a resolution that the Joint Administrators' remuneration should be calculated on a time cost basis. Details of remuneration charged during the period of the report are set out in the statements of expenses attached at Appendix F.  Fees of £1,796,777 and £112,945 excluding VAT have been drawn from the funds available in Pharma and Oncology respectively.

Breakdowns of the time costs incurred during the Period are attached at Appendix D. The remuneration recovered by the Joint Administrators based on time costs, has not exceeded the sum provided in the fees estimate circulated to creditors with the proposals.

You will see from the breakdowns of time costs attached that time costs incurred in respect of trading total £662,213 and £16,555 for Pharma and Oncology respectively. These have been drawn in full.

The remuneration recovered by the Joint Administrators based on time costs, is lower than the time costs actually incurred. The balance of fees of £171,021 and £12,983 for Pharma and Oncology respectively will be written off.

Joint Administrators' disbursements

The Joint Administrators' disbursements are a recharge of actual costs incurred by the Joint Administrators on behalf of the Companies. Mileage payments made for expenses relating to the use of private vehicles for business travel, which is directly attributable to the insolvency estate, are paid by FRP Advisory at the HMRC approved mileage rate prevailing at the time the mileage was incurred. Details of disbursements incurred during the Period are set out in Appendix D.

The expenses of the administrations

Attached at Appendix F are statements of the expenses that have been incurred during the Period.

An estimate of the Joint Administrators' expenses was set out in the Proposals.  The total expenses incurred by the Joint Administrators are included in the cumulative figures in the receipts and payments accounts attached at Appendix E.

The expenses incurred have exceeded the details previously provided. Details are provided below of where the initial estimate has been exceeded:

·       The trading loss is higher than initially anticipated for the Companies. This is because following the IP sale the Companies had sufficient funds to repay all creditors. As such trading activity was increased so that ongoing projects were on track insofar as possible following the exit from administration. It was initially anticipated that Oncology would be funded by Pharma and so would incur no trading losses, however following the correct determination of the recipient of the sales process, Oncology had sufficient funds that funding by Pharma was not required.

·       Tax advisors' fees in Pharma were not originally anticipated in the Proposals. However significant advice from two different firms of tax accountants and tax counsel has been required, given the complexities of investigating and understanding the Companies' true tax affairs, as they were not previously documented or planned.

·       Legal fees are higher than initially anticipated given the challenges faced by the Joint Administrators in returning the Companies as going concerns as well as the requirement for additional court hearings, which necessitated the instruction of leading insolvency counsel in addition to senior tax counsel, as detailed previously within this report. These fees have been incurred entirely within Pharma.

Creditors have a right to request further information from the Joint Administrators and further have a right to challenge the Joint Administrators' remuneration and other expenses, which are first disclosed in this report, under the Insolvency Rules.  (For ease of reference these are the expenses incurred in the reporting period as set out in Appendix F only.)  Further details of these rights can be found in the Creditors' Guide to Fees which you can access using the following link http://creditors.frpadvisory.com/feesguide.htm and select the one for administrations.  Alternatively, a hard copy of the relevant guide will be sent to you on request.  Please note there is a time limit for requesting information being 21 days following the receipt of this progress report. There is a time limit of eight weeks following the receipt of this report for a Court application that the remuneration or expenses are excessive.

 

END

 

 

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