Administrators proposals for achieving the purpose of Administration

Transcription

1 Subocean Group Limited in Administration Administrators proposals for achieving the purpose of Administration Court of Session Case No. P38 of March 2011 Contact details for queries Address Direct line Fax PricewaterhouseCoopers LLP, 32 Albyn Place, Aberdeen, AB10 1YL

2 Contents Section Page(s) 1 Purpose of this document The Administrators statement of proposals: a. Brief history of the Company and summary of the Administrators actions to date 5-8 b. Dividend prospects and end of administration 9-10 c. Proposals for achieving the purpose of Administration d. Statement of affairs 12 e. Statutory and other information 13 3 Administrators Receipts and payments account 14 Appendices A B C D Summary of the Directors Statement of Affairs Pre-Administration costs Summary group structure chart Common questions and answers: Part I The initial meeting of creditors and the creditors committee Part II A creditors guide to Administrators fees (in accordance with Statement of Insolvency Practice 9 (Scotland)) 2 of 14

3 1. Purpose of this document I wrote to all creditors on 8 February 2011 to explain that Subocean Group Limited ( the Company ), together with its ultimate parent company Subocean Group (Holdings) Limited (in Administration) ( SOGHL ) and its subsidiary Subocean Limited (in Administration) ( SOL ) (together the Group ) had entered into Administration and that Ian D Green, Toby S Underwood and I (together the Administrators ) had been appointed as their Joint Administrators on 28 January We were appointed as Administrators to manage the affairs, business and property of the Company. We will act until such time as our proposals for achieving the purpose of administration have been agreed by creditors and implemented, following which the Administration will be ended. The purpose of administration is to achieve one of the following objectives: (a) (b) (c) primarily, rescuing the Company as a going concern, or failing that; achieving a better result for the Company s creditors as a whole than would be likely if the Company were wound up (without first being in Administration); or finally realising property in order to make a distribution to one or more secured or preferential creditors. For the reasons detailed in this document objective (b), failing which objective (c) is being pursued as it was not reasonably practicable to rescue the Company as a going concern. This document and its appendices form the Administrators statement of proposals for achieving the purpose of administration as required by Paragraph 49 of Schedule 1B of the Insolvency Act 1986 (Sch.B1 IA86). An initial creditors meeting will be held at 11 am on Friday April at The Palm Court Hotel, 81 Seafield Road, Aberdeen, AB15 7YX to consider these proposals and decide whether a Creditors Committee should be formed. Please note that you will be bound by our proposals if they are approved at the creditors meeting by the requisite majority of creditors. It is therefore important that you read this document carefully. You may put forward any modifications that you wish to see incorporated into the proposals and make your views known on whether they should be accepted. It would be helpful if a Creditors Committee is formed. If you are able to assist, please put your name forward as a candidate for membership by also completing the reverse part of the attached proxy Form 4.29 (Scot) above the signing block. As a creditor you can attend the creditors meeting either in person or by submitting a proxy. Please let me have details of your claim on the enclosed Form 4.7 (Scot) as soon as possible. In order to vote (either in person or by proxy) I must receive written details of your claim at or before the meeting. A proxy form (Form 4.29 (Scot)) is attached for your convenience. Should you wish to submit a proxy please ensure that you complete this form in accordance with the information contained on the form. Please note that you are not obliged to attend the meeting or submit a proxy if you do not wish to vote and you will not prejudice your claim and entitlement to a dividend, should there be one, if you do not attend or vote. 3 of 14

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5 2. The Administrators statement of proposals a. Brief history of the Company and summary of the Administrators actions to date Background The Group operated as a specialist supplier of subsea cable installation and burial services to the marine renewables sector. The Company is a non-trading holding company. It is wholly owned by SOGHL and holds a 100% shareholding in SOL as shown at Appendix C. SOGHL is the ultimate parent company of the Group and SOL was the Group s main trading entity. SOL held the majority of the Group s assets and liabilities. The Company used to be the ultimate parent company of the Group, but became an intermediate holding company for the Group following a financial restructuring which was completed in December SOGHL became the Group s ultimate parent company following that restructuring. The restructuring included the provision of 25m banking facilities to the Group from HSBC Bank plc ( the Bank ) and HSBC Equipment Finance (UK) Limited ( HEF ), together with a 17m debt investment in SOGHL from Lloyds TSB Development Capital Limited ( LDC ). The lending from the Bank and HEF was secured by separate bonds and floating charges over all of the Company s assets. The debt provided to SOGHL by LDC was in the form of loan notes, secured by a floating charge over the Company s assets. The circumstances giving rise to the Administrators appointment In the year ended 31 December 2008, when the Company was the ultimate parent company of SOL, it reported consolidated annual turnover in its audited financial statements of 31.5m, an operating loss of 5.7m and a net loss of 5.8m. At 31 December 2008 the Company had consolidated net liabilities of 5.9m. The Company grew very rapidly in the 11 month period ended 30 November In its audited accounts for that period, its directors noted that the Company had established itself as one of the largest providers of services to the marine renewables sector in the UK. For the 11 month period ended 30 November 2009, the Company reported annual consolidated turnover of 60.1m in its audited financial statements, with profit from operations totalling 6.3m and a net profit of 4.5m. Its balance sheet showed a consolidated net liabilities position of 1.4m. As part of the December 2009 financial restructuring, the Company was replaced as the ultimate parent company of SOL by SOGHL and the Group settled a historical guarantee obligation of both the Company and SOL in December The obligation related to cross guarantees provided to the Bank of Scotland in respect of amounts due by CNS International Limited (in Liquidation). A provision for that guarantee obligation was made in the Company s audited accounts for the year ended 31 December The full and final settlement was 6.5m, which was a significant amount of the funding raised by the Group in December The Group continued its rapid growth following the December 2009 restructuring. It had entered into a number of significant lump sum contracts with customers, which differed from its historical day rate business model. Those lump sum contracts tied up significant amounts of the Group s working capital, placing pressure on its ability to pay its suppliers within agreed contractual terms. As at 31 August 2010, management accounts show that the Group had consolidated debtors, sundry debtors and work in progress totalling 62.1m. In August 2010, the Group s main trading entity, SOL, completed work on a major offshore wind farm project. However, during the final account settlement negotiations in early September 2010, it became clear that the customer on that contract would dispute the entire amount of unbilled work in progress and certain claims, totalling c. 17m. 5 of 14

6 2. The Administrators statement of proposals The Group had largely funded its rapid growth from working capital, which had necessitated a degree of stretching of trade creditor payment terms and amounts due to HM Revenue & Customs ( HMRC ). Due to the growing need for cash to meet supplier payments as they fell due and the time needed to reach a settlement with the customer disputing what management considered to be recoverable amounts to SOL totalling c. 17m, management commenced discussions with key suppliers and HMRC to establish payment deferral plans. Those plans were dependent to a large extent on a satisfactory resolution of negotiations with the customer. As funding pressures mounted, SOL s management concluded that it was necessary to accept a full and final settlement of 6m, which crystallised a significant contract loss and required the negotiation of further creditor payment deferrals. Against this background of significant creditor backlog, the Group began to experience additional cash flow difficulties around November 2010 as working capital requirements on other key contracts produced a funding need in excess of agreed banking facilities. As the Company was not a trading entity, it was dependent on either funding from SOGHL or funding from the trading activities of its subsidiary SOL to meet its funding requirements. Although the Group s consolidated turnover had again grown significantly to 108.4m in the 11 months ended 31 October 2010, the significant loss recognised on SOL s contract settlement of 6m reduced the confidence of the Group s existing lenders. New interim management was engaged and necessary adjustments were made to the Group s management accounts. These mainly related to write downs to amounts recoverable on SOL s customer contracts. The Group s consolidated management accounts showed a loss after tax of 6.2m for the 11 months ended 31 October Following a detailed review by management, SOGHL s estimated consolidated loss after tax for the year ended 31 December 2010 increased to 20.3m. As the Group relied heavily upon leased vessels and other leased equipment necessary to complete offshore work, the directors formed the opinion that, in the absence of any new equity funding or increased debt facilities, the Group would soon be unable to continue to trade. They engaged corporate finance advisors in early December 2010 to seek a sale of the Group as a going concern. However, it became apparent that there was no interest from any party in acquiring the business as a whole and taking on all of its liabilities. In addition, the advice that management received from its corporate finance advisor was that a going concern sale would need at least until March or possibly April 2011 before interested parties could complete their reviews of the Group s trading activities and financial position. In the context of increasing creditor pressure, together with customer and employee uncertainty, the directors filed a Notice of Intention to Appoint Administrators to the Company, SOGHL and SOL on 18 January 2011 at the Court of Session in Edinburgh. The filing of the Notice of Intention to appoint provided the Group with the protection of an interim moratorium and therefore protection from legal action and the threat of lessors uplifting their assets. This provided the Group with a breathing space to seek an accelerated sale of its business and assets, which the directors felt would achieve a better outcome for creditors than a forced sale through an Administration or a Liquidation process. Given the significant creditor pressure, best and final offers were requested from all interested parties by close of business on 21 January Following receipt of those offers and a short period within which interested parties were able to complete due diligence, the Company, together with SOGHL and SOL, was placed in Administration on 28 January of 14

7 2. The Administrators statement of proposals Pre-Administration costs In accordance with Rule 2.25(1)(ka) of the ISR86, the Administrators are required to provide a statement complying with Rule 2.25(1B) in relation to any pre- Administration costs charged or incurred by the Administrators or, to the Administrators knowledge, by any other person qualified to act as an insolvency practitioner. Pre-administration costs are defined in Rule 2.25(1A)(a) as fees charged or expenses incurred by the Administrators or another person qualified to act as an insolvency practitioner before the Company entered Administration, but with a view to its doing so. Unpaid pre-administration costs are defined in Rule 2.25(1A)(b) as pre-administration costs which had not been paid when the Company entered Administration. A statement of any such pre-administration costs is shown at Appendix B. PricewaterhouseCoopers LLP ( PwC ) was engaged by the Company on 29 November 2010, with a principal client relationship with the Bank, to assess the Group s short term cash requirements, undertake contingency planning in the event of the Group s insolvency and to monitor the work undertaken by the Group s professional advisors who had been engaged to seek new investment for the Group and/or the sale of the Group. On 10 January 2011, PwC s scope was extended to provide a more comprehensive oversight role of the Group s professional advisors and on 20 January 2011 the Group s advisors formally handed over what was then a sales process to PwC. PwC partners and staff then negotiated with potential purchasers with a view to a sale of the Group s business and assets and in anticipation of PwC partners being appointed as Administrators of the Group. As noted below, the Group s business and assets were sold on 28 January Full details of the sales process were provided in the Administrators initial letter to all of the Company s creditors dated 8 February 2011, which included an appendix in accordance with the requirements of Statement of Insolvency Practice ( SIP ) No.16 disclosing details of the transaction and significant background information. Details of the fees that were charged by PwC for that pre-administration work are shown at Appendix B. To prepare for the sale of the Group s business and assets and, to ensure that in accordance with SIP 16, the Group s assets were appropriately valued, the Administrators instructed King Sturge LLP to conduct valuations of the Company and SOL s tangible assets. Details of the amounts due to King Sturge LLP which are currently unpaid, are shown at Appendix B. Merrill Corporation Limited provided an electronic data room to interested parties. The Administrators requested the use of the data room to facilitate access to financial and operational information for interested parties. Without the data room interested parties would not have been able to complete limited diligence within the short timescale that they were afforded. Details of the amount due to Merrill Corporation Limited is shown at Appendix B. Simmons and Company International Limited acted as corporate finance advisors to the Company and the Group. The Administrators sought their assistance to progress the sale of the business and assets before taking over the sales process on 20 January Without the handover of information and provision of service by Simmons & Company International Limited, it would not have been possible for the Administrators to consummate the sales process within the timescales available. The work conducted by PwC and the unpaid pre-administration costs incurred furthered the achievement of the objective of the Administration. The sale of the Company s assets, following an intensive, fully marketed sales process, achieved a better outcome for the Company s creditors as whole than would be likely if the Company were first wound up (without first being in Administration). A detailed consideration of the alternative courses of action considered by the Company s directors was provided in the Administrators letter dated 8 February To summarise, the Administrators are of the opinion that ceasing to trade the Group s business and seeking a buyer or buyers for assets on a piecemeal basis would have resulted in lower asset realisations for all creditors. Trading the business in insolvency and seeking a buyer was not feasible due to, amongst other things, the level of funding required. The level of funding required also made a Company 7 of 14

8 2. The Administrators statement of proposals Voluntary Arrangement unachievable. Had a liquidator of the Company been appointed, all employees would have been made redundant and the piecemeal sale of assets was likely to result in lower asset realisations for all creditors. The Administrators propose to settle the unpaid pre-administration costs payable by the Company to King Sturge LLP, Merrill Corporation Limited and Simmons & Company International Limited as an expense of the Administration. Those unpaid pre-administration expenses are subject to approval by the Company s creditors in the same manner as the Administrators remuneration and certain disbursements and are not part of the Administrators proposals subject to approval under Paragraph 53 of Sch.B1 IA86. The manner in which the Company s affairs and business have been managed and financed Immediately following their appointment, the Administrators completed a sale of the business and assets of the Company, SOGHL and SOL to TPG (UK) Limited, a wholly owned subsidiary of Technip UK Limited. The sale followed the intensive and full marketing process initiated by the directors in early December Fourteen interested parties had discussions with the directors and their advisors about their interest in the Group s business and assets, seven of whom entered into non-disclosure agreements and were granted access to a data room to facilitate their review of the Group s operational and financial position. Further details of the sales process were provided in the Administrators letter to all of the Group s creditors dated 8 February The Company s unencumbered plant and equipment was sold for 449,996 on 28 January 2011 as part of the sale to TPG (UK) Limited, together with the Company s intellectual property and goodwill which were each sold for 1. The consideration received was based upon the allocation of consideration that TPG (UK) Limited wished to attribute to the Company s assets as part of the wider sale of the Group s business and assets. As noted in the Administrators letter dated 8 February 2011, the sale represented the best available offer for the Company s assets following the sales process. There are no remaining assets of the Company for the Administrators to realise. Objective of the Administration The purpose of Administration is to achieve one of the following objectives: (a) (b) (c) primarily, rescuing the Company as a going concern, or failing that; achieving a better result for the Company s creditors as a whole than would be likely if the Company were wound up (without first being in Administration); or finally realising property in order to make a distribution to one or more secured or preferential creditors. For the reasons detailed in this document, the Administrators are pursuing objective (b), failing which, objective (c) will be achieved. 8 of 14

9 2. The Administrators statement of proposals b. Dividend prospects Preferential creditors On the basis of present information it is likely that preferential creditors, estimated in the directors statement of affairs to be 65k and comprising arrears of wages, accrued holiday and pension contributions, will be paid in full. Secured creditors The Bank holds a bond and floating charge over the Company s assets, together with cross guarantees in respect of liabilities due to it by SOGHL and SOL. HEF has a floating charge over the assets of the Company. LDC also holds a bond and floating charge over the assets of the Company. According to the directors Statement of Affairs, at the date of the Administrators appointment an amount of approximately 25.7m was due to the floating charge holders. Of this, c. 260k relates directly to the Company. It is currently anticipated that the floating charge holders will suffer a shortfall on their lending. Unsecured creditors According to the directors statement of affairs, unsecured non-preferential creditors total 12.0m. The Administrators have formed the view that the Company is unlikely to have sufficient property to enable a distribution to be made to unsecured creditors, other than by virtue of the Prescribed Part as detailed below. Prescribed Part The Prescribed Part (Section 176A IA86 and the Prescribed Part Order) applies where there are floating charge realisations, net of costs, to be set aside for unsecured creditors. This equates to: 50% of Net Property up to 10,000; 20% of Net Property in excess of 10,000 and subject to a maximum amount of 600,000. The Prescribed Part applies to the Company as there are charges created and registered at Companies House following the Prescribed Part Order coming into force on 15 September The amount of the Prescribed Part will be subject to allowable costs, but to the best of the Administrators knowledge and belief: the estimated value of the Company s Net Property is likely to be in the region of 320,000; the estimated value of the Prescribed Part is likely to be in the region of 67,000; and the Administrators do not currently intend to make an application to Court under Section 176A(5). Ending the Administration 9 of 14

10 2. The Administrators statement of proposals The Administrators currently envisage that once the objective of the Administration has been achieved an application to Court may be made for permission for the Administrators to distribute to the unsecured creditors. If permission is granted, following the distribution to unsecured creditors, the Administrators will file notice under Paragraph 84(1) Sch.B1 IA86 with the Registrar of Companies, following registration of which the Company will be dissolved three months later. If permission is not granted the Administrators will place the Company into creditors voluntary liquidation or otherwise act in accordance with any order of the Court. c. Proposals for achieving the purpose of the Administration The Administrators make the following proposals for achieving the purpose of administration. i) The Administrators will continue to manage and finance the Company s business, affairs and property from asset realisations in such manner as they consider expedient with a view to achieving a better result for the Company s creditors as a whole than would be likely if the Company were wound up (without first being in Administration). ii) The Administrators may investigate and, if appropriate, pursue any claims that the Company may have under the Companies Act 1985 or IA86 or otherwise. In addition, the Administrators shall do all such other things and generally exercise all their powers as Administrators as they in their discretion consider desirable in order to achieve the purpose of the Administration or to protect and preserve the assets of the Company or to maximise their realisations or for any other purpose incidental to these proposals. iii) If funds are available and if the Administrators do not intend to give notice pursuant to Paragraph 83 Sch.B1 IA86 to move from administration to creditors voluntary liquidation, the Administrators may make a distribution to the secured or preferential creditors in terms of Rule 2.41(4) of ISR86. iv) If the Administrators think that funds will become available for unsecured creditors, the Administrators may at their discretion establish in principle the claims of unsecured creditors for adjudication by a subsequent liquidator, the costs of so doing will be met as a cost of the Administration as part of the Administrators remuneration (where the Administrators think there will be sufficient funds for a distribution to unsecured creditors other than by virtue of the prescribed part) or out of the prescribed part as costs associated with the prescribed part (where the Administrators think that funds will become available to the unsecured creditors by virtue of the prescribed part but not otherwise). v) If the Administrators think that funds will become available for unsecured creditors, the Administrators may at their discretion make an application to court for permission to make distributions to unsecured creditors under Paragraph 65(3) Sch.B1 IA86. vi) A Creditors Committee will be established if sufficient creditors are willing to act on it. The Administrators propose to seek the election of a Creditors Committee and to consult with it from time to time. Where the Administrators consider it appropriate, they will seek sanction from the committee to a proposed action rather than convening a meeting of all creditors. vii) The Administrators will consult the Creditors Committee, if one is appointed, prior to making an application to the court under section 176A(5) IA86 for an order not to distribute the prescribed part to unsecured creditors if the Administrators conclude that the cost of making a distribution would be disproportionate to the benefits. 10 of 14

11 2. The Administrators statement of proposals viii) The Administrators will consult with the Creditors Committee concerning the necessary steps to extend the Administration beyond the statutory duration of one year if an extension is considered advantageous. The Administrators shall either apply to the court or seek consent from the appropriate classes of creditors for an extension. ix) The Administrators may use any or a combination of exit route strategies in order to bring the Administration to an end, but in this particular instance the Administrators are likely to wish to pursue the following options as being the most cost effective and practical in the present circumstances: The Administrators will apply to the Court to allow the Administrators to distribute surplus funds, if any, to unsecured non-preferential creditors. If such permission is given, the Administration will be brought to an end by notice to the Registrar of Companies under Paragraph 84 Sch.B1 IA86, following registration of which the Company will be dissolved three months later. If permission is not granted the Administrators will place the Company into creditors voluntary liquidation or otherwise act in accordance with any order of the Court. x) The Administrators shall be discharged from liability pursuant to Paragraph 98(1) Sch.B1 IA86 in respect of any action of theirs as Administrators at a time resolved by the Creditors Committee, or, if there is no Creditors Committee, 14 days after they cease to be Administrators of the Company or in any case at a time determined by the Court xi) It is proposed that the Administrators fees be fixed under Rule 2.39 of ISR R86. xii) Category 2 disbursements (as defined by Statement of Insolvency Practice 9 (Scotland)) be charged in accordance with their firm s policy. xiii) Creditors will be asked to vote upon the following matters at the initial meeting of creditors: First the approval of the Administrators proposals for achieving the purpose of administration; Second the formation of a Creditors Committee; Third, if a Creditors Committee is not formed the basis and level of the Administrators fees and Category 2 disbursements; and Fourth, if a Creditors Committee is not formed the timing of the Administrators discharge from liability pursuant to Paragraph 98(1) Sch.B1 IA of 14

12 2. The Administrators statement of proposals d. Statement of affairs A Statement of Affairs of the Company ( the Statement ) was delivered to the Administrators on 3 March The Statement was signed by William Docherty and Statements of Concurrence have been provided by the other directors, being Michael John Daniel and John George Sinclair. The Statement of Affairs is reproduced in redacted form at Appendix A and includes details of the names and addresses (where confidentiality permits) and debts to creditors (including details of any security held). The Administrators make the following comments on the directors Statement of Affairs: In accordance with the standard format of the Statement of Affairs, no provision has been made for the costs of realising the Company s assets or the costs of the Administration; and The Administrators have not carried out anything in the nature of an audit on the information. 12 of 14

13 2. The Administrators statement of proposals e. Statutory and other information Court details for the Administration: Court of Session P38 of 2011 Full name: Subocean Group Limited Trading name: Subocean Group Limited Registered number: SC Registered address: 32 Albyn Place, Aberdeen, AB10 1YL (formerly Sixth Floor, Union Plaza, 1 Union Wynd, Aberdeen, AB10 1DQ) Company directors: Michael John Daniel, William Docherty and John George Sinclair Company secretary: Sylvia Sinclair Shareholdings held by the directors and secretary: None Date of the Administration appointment: 28 January 2011 Administrators names and addresses: J Bruce Cartwright, Ian D Green and Toby S Underwood of PricewaterhouseCoopers LLP, 32 Albyn Place, Aberdeen, AB10 1YL Appointor s / applicant s name and address: The directors of the Company, Sixth Floor, Union Plaza, 1 Union Wynd, Aberdeen, AB10 1DQ Objective being pursued by the Administrators: Objective (b), achieving a better result for the Company s creditors as a whole than would be likely if the Company were wound up (without first being in Administration). Failing that, the Administrators consider that objective (c) will be achieved. Division of the Administrators responsibilities: Pursuant to paragraph 100(2) of Schedule B1 to the Insolvency Act 1986, any act required or authorised under any enactment to be done by and administrator may be done by any of the Administrators acting jointly or alone Proposed end of the Administration: Dissolution or creditors voluntary liquidation Estimated dividend for unsecured creditors: Dividend will be limited to the amount of the prescribed part. Estimated values of the prescribed part and the Estimated value of prescribed part is 67,000 and net property 320,000 company s net property: Whether and why the Administrators intend to apply to The Administrators do not currently intend to make an application to Court under court under Section 176A(5) IA86: Section 176A(5) of IA86 to disapply the Prescribed Part. The European Regulation on Insolvency Proceedings The European Regulation on Insolvency Proceedings applies to this Administration (Council Regulation(EC) No. 1346/2000 of 29 May and the proceedings are main proceedings. 2000): Any other information which the Administrators think None necessary to enable creditors to decide whether or not to vote for adoption of the proposals: 13 of 14

14 3. Administrators Receipts and payments account 14 of 14

15 Appendix A Summary of the Directors Statement of Affairs The following documents are included over the next 7 pages: Statement of Concurrence John George Sinclair Statement of Concurrence Michael J. Daniel Redacted Statement of Affairs prepared by William Docherty A detailed listing of the Company s creditors is available for secure download at using the password provided in the Administrators letter to creditors dated 23 March 2011.

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23 Appendix B Pre-Administration costs The following were costs incurred prior to the appointment of Administrators but with a view to the Company entering Administration. It is proposed that the unpaid costs will be paid as an expense of the Administration. None of these costs are part of the proposals subject to approval under paragraph 53 Sch.B1 IA86. Unpaid amount ( ) Paid amount ( ) Payment made by (if applicable) Fees charged by the Administrators 234,434 Subocean Group Limited Expenses incurred by the Administrators - Administrators outlays - King Sturge LLP - Merrill Corporation Limited - Simmons & Company International Limited - 8,879 9,762 8,988 8,188 Subocean Group Limited Fees charged by other persons qualified to act as an insolvency practitioner Expenses charged by other persons qualified to act as an insolvency practitioner Total 27, ,622 Notes: 1. The amounts shown above are all exclusive of VAT. 2. A statement in accordance with Rule 2.25(1)(ka) of the ISR86 is shown in Section 2a. That statement provides an explanation of why the above costs were incurred prior to the appointment of the Administrators and how they contributed to the objective of the Administration.

24 Appendix C Summary group structure chart Subocean Group (Holdings) Limited (in Administration) 100% Subocean Group Limited (in Administration) 100% 100% 100% 100% Subocean People Solutions Limited Subocean Limited (in Administration) Subocean Cyprus Limited CNS International Limited (in Liquidation) Notes: 1. Subocean Cyprus Limited is a Cypriot registered company. All other companies are Scottish registered. 2. The Administrators do not act as the Liquidators of CNS International Limited (in Liquidation).

25 Appendix D Common questions and answers Who will be at the meeting? One of the Administrators, or an employee of the Administrators firm who is experienced in insolvency matters, will chair the meeting and answer creditors questions. There is no obligation on the directors of the Company to attend unless they are required to do so by the Administrators. The Administrators have not specifically requested that the directors attend the meeting as they are not aware of issues that would necessitate their attendance. What will happen at the meeting? It will be assumed that creditors will already have received and read this document and enclosed statement. The meeting will give creditors an opportunity to put questions to the Administrator. The meeting will then consider and vote upon any modifications that individual creditors might put forward, following which a vote will be taken upon the whole proposals as modified. Various other resolutions might be considered, in particular those dealing with the basis of the Administrators remuneration and the composition of any Creditors Committee. Am I obliged to attend the creditors meeting? You are not obliged to attend the creditors meeting. On the one hand, it is your opportunity to ask questions before deciding whether to suggest any modifications and how to vote on the Administrators proposals. On the other hand, you will not compromise your claim and entitlement to any dividend if you do not attend. The law recognises that creditors are not always able to attend in person and allows you to ask a representative to attend as proxy and vote on your behalf. How do I ensure that my vote counts at the meeting? In order to vote, a creditor must have submitted a written notice of his claim on Form 4.7 (Scot) and the chairman must have admitted that claim following the guidelines below. This claim together with any proxy (or Form 4.29 (Scot) must be lodged at or before the meeting (Rule 7.16(2)). Do I need to lodge a proxy form? If you yourself are the creditor (and not a corporate body such as a limited company), you may vote by simply attending the meeting, provided you have lodged a claim as explained above. If you do not want to attend the meeting, you may nominate someone else, or the chairman of the meeting, to vote for you. They can vote either on your instructions or at their discretion. Do, however, remember that the chairman will be one of the Administrators and you might wish to consider specifying clearly how he should vote (Rule 7.14). You must do this by completing the enclosed proxy Form 4.29 (Scot) or a substantially similar form. The form needs to be signed by the creditor or by someone authorised by him, either generally or with reference to a particular meeting, and the nature of the person's authority to sign should be stated. If a Subocean Group Limited (in Administration) Joint Administrators proposals

26 Appendix D Summary group structure chart company is the creditor, a director should normally sign (Rule 7.15). The proxy form must then be submitted at or before the meeting in the same way as a written notice of the claim. Please also remember that if the debt is owed to a limited company or other corporation and you wish to attend and vote at the meeting, you should complete and return the proxy form even if you are a director of the company (alternatively you can produce at the meeting a resolution of the directors authorising you to represent that company) (Rule 7.20). Who decides whether my claim ranks for voting purposes? You are entitled to vote if your claim has been accepted in whole or in part. If your claim has not already been dealt with then the chairman may decide to accept it at the meeting (Rule 7.9(2)). What happens if I disagree with the chairman s decision? You are entitled to appeal to the court within 14 days of the decision for an order reversing the chairman s decision on your claim (Bankruptcy (Scotland) Act 1985, s49 (6) as applied by Rule 7.9(3)). We recommend that you seek legal advice about the merits of taking these steps in any particular circumstances. How do I calculate my claim for voting purposes? Your vote is based on the value of your debt at the date of the administration less any amounts paid subsequently (Rule 4.15(5)). Votes rank in proportion to the claim. What majorities are needed to approve resolutions? A resolution to approve the proposals, or any modification to them, is passed at the creditors meeting if supported by a majority in excess of 50% in value of the creditors present in person or by proxy and voting on the resolution (Rule 7.12(1)). What happens if I cannot yet quantify my claim with certainty? A creditor cannot vote in respect of a debt for an unliquidated amount or any debt whose value is not ascertained, unless the chairman agrees to put on the debt an estimated minimum value for voting purposes (Rule 7.9(2)). What happens if my debt is partly secured? You are entitled only to vote in respect of the balance of your claim (if any) after deducting the value of your security as estimated by you (Bankruptcy (Scotland) Act 1985, Sch 1, s 5 as applied by Rule 4.16). An owner of goods under a hire-purchase agreement or an agreement for hire of goods for more than 3 months is entitled to vote in respect of the debt due by the company as at the date of administration. No account is taken of any amount attributable to the

27 Appendix D Summary group structure chart exercise of any right under the agreement so far as that right has become exercisable solely by virtue of the administration (Rule 2.33). The position with hire purchase agreements is complex and separate advice should be sought from your own advisors. Am I bound by the Administrators proposals if they are approved at the meeting? The Administrators proposals, when approved by the creditors meeting, will dictate how the company s affairs will be conducted in future and how creditors claims will be addressed. Once approved, the proposals are binding on all creditors, including those not present or represented at the meeting. For this reason, it is important that creditors properly consider the proposals and decide whether and how they wish to vote. What are the functions of the Creditors Committee? The Creditors' Committee shall assist the Administrator in discharging his functions, and act in relation to him in such manner as may be agreed from time to time (Rule 2.36(4)). In particular, it has the duty to agree the basis of the Administrators remuneration (Rule 2.39(3)). How is the Creditors Committee formed? The Creditors' Committee is established at the creditors' meeting. It is not obligatory but the creditors decide whether it is necessary (Paragraph 56, Sch B1 of the Insolvency Act 1986). The committee must consist of at least three and not more than five creditors of the company elected at the meeting (Rule 3.4(1) as applied by Rule 2.36). Any creditor of the company is eligible to be a member of the committee, so long as his claim has not been rejected for the purpose of his entitlement to vote (Rule 3.4(2) as applied by Rule 2.36). A body corporate may be a member of the committee, but it can only act as such through a properly appointed representative (Rule 3.4(3) as applied by Rule 2.36). No person may act as a member of the committee unless and until he has agreed to do so (Rule 4.42(3) as applied by Rule 2.36). Unless the relevant proxy or authorisation contains a statement to the contrary, such agreement may be given by the creditors proxy-holder or representative under section 375 of the Companies Act 1985 present at the meeting establishing the committee (Rule 4.42(3) as applied by Rule 2.36) A person acting as a committee member's representative must hold a letter of authority entitling him so to act (either generally or specially) and signed by or on behalf of the committee member (Rule 4.48 as applied by Rule 2.36). No member may be represented by a body corporate, or by a partnership or by a person who is an undischarged bankrupt. (Rule 4.48(4) as applied by Rule 2.36).

28 Appendix D Summary group structure chart No person shall act at one and the same time as representative of more than one committee-member, or act both as a member of the committee and as representative of another member (Rule 4.48(5) as applied by Rule 2.36). The Creditors' Committee does not come into being, and accordingly cannot act, until the Administrator has issued a certificate of its due constitution (Rule 4.42 as applied by Rule 2.36). How is the Administrators remuneration fixed? The following information about the Administrators fees is from Statement of Insolvency Practice 9 (Scotland) issued by the Association of Business Recovery Professionals, Appendix B: Administrators guidance, as amended by The Insolvency (Scotland) Amendment Rules 2006.

29 Appendix D Common questions and answers

30 Appendix D Common questions and answers

31 Appendix D Common questions and answers

32 Rule 4.15 The Insolvency Act 1986 Form 4.7 (Scot) Statement of Claim by Creditor Pursuant to Rule 4.15(2)(a) of the Insolvency (Scotland) Rules 1986 WARNING It is a criminal offence for a creditor to produce a statement of claim, account, voucher or other evidence which is false, unless he shows that he neither knew nor had reason to believe that it was false; or for a director or other officer of the company who knows or becomes aware that is false to fail to report it to the liquidator within one month of acquiring such knowledge. On conviction either the creditor or such director or other officer of the company may be liable to a fine and/or imprisonment. Notes (a) Insert name of company (a) Subocean Group Limited - in Administration (b) Insert name and address of creditor (b) (c) Insert name and address, if applicable, of authorised person acting on behalf of the creditor (c) (d) Insert total amount as at the due date (see note (e) below) claimed in respect of all the debts, the particulars of which are set out overleaf. (e) The due date in the case of a company (i) which is subject to a voluntary arrangement is the date of a creditors meeting in the voluntary arrangement; (ii) which is in administration is the date of the administration order; (iii) which is in receivership is the date of appointment of the receiver; and (iv) which is in liquidation is the commencement of the winding up. The date of commencement of the winding up is (i) in a voluntary winding up the date of the resolution by the company for winding up (sect. 86 or 98); and (ii) in a winding up by the court, the date of the presentation of the petition for winding up unless it is preceded by a resolution for voluntary winding up (section 129) I submit a claim of (d) in the liquidation of the above company and certify that the particulars of the debt or debts making up that claim, which are set out overleaf, are true, complete and accurate, to the best of my knowledge and belief. Signed Creditor/person acting on behalf of creditor Date

33 Rule 4.15 From 4.7 (Scot) (contd.) PARTICULARS OF EACH DEBT Notes A separate set of particulars should be made out in respect of each debt. 1. Describe briefly the debt, giving details of its nature, the date when it was incurred and when payment became due 1. Particulars of Debt Attach any documentary evidence of the debt, if available. 2. Insert total amount of the debt, showing separately the amount of principal and any interest which is due on the debt as at the due date (see note (e)). Interest may only be claimed if the creditors is entitled to it. Show separately the VAT on the debt and indicate whether the VAT is being claimed back from HM Customs and Excise. 3. Insert the nature and amount of any preference under Schedule 6 to the Act claimed in respect of the debt. 4. Specify and give details of the nature of any security held in respect of the debt, including:- 2. Amount of Debt 3. Preference claimed for Debt 4. Security for debt (a) (b) the subjects covered and the date when it was given; the value of the security Security is defined in section 248(b) of the Insolvency Act 1986 as meaning any security (whether heritable or moveable), any floating charge and any right of lien or preference and any right of retention (other than a right of compensation or set off). For claims in administration procedure security also includes a retention of title agreement, hire purchase agreement, agreement for the hire of goods for more than three months and a conditional sale agreement (see Rules 2.11 and 2.12). In liquidation only the creditor should state whether he is surrendering or undertakes to surrender his security; the liquidator may at any time after 12 weeks from the date of commencement of the winding up (note (e)) require a creditor to discharge a security or to convey or assign it to him on payment of the value specified by the creditor. 5. In calculating the total amount of his claim in a liquidation, a creditor shall deduct the value of any security as estimated by him unless he surrenders it (see note 4.). This may apply in administration (see Rule 2.11). 5. Total amount of debt

34 Rule 7.15 The Insolvency Act 1986 PROXY Form 4.29 (Scot) Pursuant to Rules 7.14 and 7.15 of the Insolvency (Scotland) Rules 1986 Subocean Group Limited - In Administration Name of Creditor/Member Address (hereinafter called the principal ) Insert the name and address of the proxy Name of Proxy-Holder 1. Address holder and of any Whom failing 2. alternatives. A proxy holder must be an individual aged over 18. Whom failing 3. I appoint the above person to be the principal s proxy-holder at:- Delete as appropriate *all meetings in the above insolvency proceedings relating to the above company *the meeting of creditors/members of the above Company to be held on or at any adjournment of that meeting. Voting Instructions The proxy-holder is authorised to vote or abstain from voting in the name, and on behalf, of the principal in respect of any matter(s), including resolution(s), arising for determination at said meeting(s) and any adjournment(s) thereof and to propose any resolution(s) in the name of the principal, either (i) in accordance with instructions given below, or (ii) if no instructions are given, in accordance with his/her own discretion.

35 Complete only if you wish to instruct the proxy-holder to vote for a specific person as liquidator Delete if the proxy-holder is only to vote as directed in (1) Set forth any voting instructions for the proxyholder. If more room is required, attach a separate sheet 1. To *propose/support a resolution for the appointment of whom failing as liquidator of the company. (In the event of a person named in paragraph (1) withdrawing or being eliminated from any vote, the proxy-holder may vote or abstain in any further ballot at his/her discretion) Signed Date Name in BLOCK LETTERS Position of signatory in relation to the creditor/member or other authority for signing Notes for the Principal and Proxy-holder 1. The chairman of the meeting who may be nominated as proxy-holder, will be the insolvency practitioner who is presently *liquidator/receiver/administrator/nominee under the voluntary arrangement or a director of the company. 2. All proxies must be in this form or a form substantially to the same effect with such variations as circumstances may require (Rules 7.15(3) and 7.30). 3. To be valid the proxy must be lodged at or before the meeting at which it is to be used (Rule 7.16(2)). 4. Where the chairman is nominated as proxy-holder he cannot decline the nomination (Rule 7.14(4)). 5. The proxy-holder may vote for or against a resolution for the appointment of a named person to be liquidator jointly with another person, unless the proxy states otherwise (Rule 7.16(4)). 6. The proxy-holder may propose any resolution in favour of which he would vote by virtue of this proxy (Rule 7.16(5)). 7. The proxy-holder may vote at his discretion on any resolutions not dealt with in the proxy, unless the proxy states otherwise (Rule 7.16(6)). 8. The proxy-holder may not vote in favour of any resolution which places him, or any associates of his in a position to receive remuneration out of the insolvent estate unless the proxy specifically directs him so to vote (Rule 7.19(1)). 9. Unless the proxy contains a statement to the contrary, the proxy-holder has a mandate to act as representative of the principal on the creditors or liquidation committee (Rule 4.48).