Comet Owners' Move Sparks Controversy As Private Equity Firm Is In Talks To Buy The Collapsed Retailer's Tax Losses

[gf3]

http://www.dailymail.co.uk/money/markets/article-2346415/Comet-owners-talks-buy-collapsed-retailers-tax-losses.html?ITO=1490&ns_mchannel=rss&ns_campaign=1490

Comet's former private equity owners are in talks to buy the collapsed electrical retailer’s tax losses in a move that will cause further controversy.

The taxman is already picking up a £50 million bill as a result of the collapse.

Hailey Acquisitions Limited now wants to use £27 million of Comet’s tax losses to offset against its own profits.

Contentious: By some estimates Comet's owner is thought to have walked away with more than £60million despite the retailer's collapse in November 2012

Contentious: By some estimates Comet's owner is thought to have walked away with more than £60million despite the retailer's collapse in November 2012

Comet Group was heavily loss-making in the years leading up to its collapse.

Companies that lose money one year are able to offset them against profits the next year. In some cases it is possible to buy another company’s losses to offset against profits.

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Hailey’s ownership of Comet has proved highly contentious. It bought Comet for £2 and was given £50 million by the previous owner, French electrical chain Darty, in a move interpreted as a way of distancing itself from bankruptcy.

By some estimates Hailey is thought to have walked away with more than £60 million despite the retailer’s collapse in November 2012 with the loss of 6,000 jobs.

The Department for Business, Innovation and Skills is looking into the collapse. Administrators to Comet said in a report earlier this month that it was in discussions with Hailey about a sale of accumulated tax losses.

A sale may not prove a simple transaction. The Government has made it harder to buy and use another company’s tax losses in recent years.

Revenue & Customs is already facing two bills from Comet’s collapse – £27 million of unpaid taxes and £23 million in redundancy payments to staff.

Hailey Acquisitions was set up by private equity firm OpCapita to enable a collection of secretive investors to put their money into Comet.

Hailey declined to comment.

[Bloo Loo]

sell your losses?...for a tax benefit?

that has absolutely got to be EVASION.

reason...it is AFTER the fact, ie, no investor currently earning from the buyers knew about the losses beforehand, and only now they know there is a possible gain do they aim to make the "investments".

It is true insider trading at best, fraud at worst.

course, the Chief Tax Man will be in talks...near a convenient revolving door.

[cashinmattress]

This is mad. Perhaps we proles can buy up neighbours debts for pennies on the pound to offset any gains we make?

Nope. One system for them, one for us.

[Bemusedmover]

This is mad. Perhaps we proles can buy up neighbours debts for pennies on the pound to offset any gains we make?

Nope. One system for them, one for us.

..........the biggest (sick) joke is..........

they will almost certainly get away with this

cue fanfare! cue new jobs created! cue snouts in the trough :angry:

[mikthe20]

I thought this could only be done if the company making the claim was in the same trade as the one that made the losses. Since Comet stopped trading and Hailey I presume don't still sell electronics then this shouldn't be possible. No doubt they've better accountants than me though.

[R K]

Avoiding taxes?

Daily Hate should love Tories not paying tax surely........

[OnionTerror]

I bet they made double that...they also retained the Extracare (extended warranties) business...apparently that was worth roughly £60m as well...I think that was what they were really after...

[porca misèria]

Sounds like a variant on the theme of pre-pack administration.

That is to say, walk away from the debts and buy back the assets from the administrators. Assets in this case being the tax loss, not the crap business.

Is there noone else interested in buying that tax loss? I guess a public-facing company (like, say, Dixons or Home Retailing, who might find a real use for something from Comet) might be paranoid about the publicity after what's happened to the likes of Vodafone when it bought up Cable&Wireless Worldwide and was able to offset CW losses against its own tax. So that leaves the financial engineers who don't have a reputation to worry about to pick the juicy bits from the corpse.

[Ah-so]

From my knowledge of tax law, this should not be possible:

[Losses] cannot be carried forward if the company changes hands and there is a major change in the business. So there is no point in buying or selling companies purely for the sake of their tax losses.

http://www.is4profit.com/business-advice/finance-and-money/corporation-tax/losses.html

[OnionTerror]

Sounds like a variant on the theme of pre-pack administration.

That is to say, walk away from the debts and buy back the assets from the administrators. Assets in this case being the tax loss, not the crap business.

Is there noone else interested in buying that tax loss? I guess a public-facing company (like, say, Dixons or Home Retailing, who might find a real use for something from Comet) might be paranoid about the publicity after what's happened to the likes of Vodafone when it bought up Cable&Wireless Worldwide and was able to offset CW losses against its own tax. So that leaves the financial engineers who don't have a reputation to worry about to pick the juicy bits from the corpse.

I worked for Comet till it went "tits up"...the store closures were staggered, so remaining stock from the initial closures was then moved to another store, until it went, or iall the crap that couldn't be sold, was flogged off to traders who dealt with liquidated stock...

...AFAIK, most, if not all the buildings were leased...Our shop fittings, for example, were sold for £1500 quid...I bet the scrap value was at least 10 times that...

There was a big auction at the Skelmersdale main depot, that sold off the "rolling stock" assets - the company cars, trucks, etc.. There was a story I heard, whereby a load of engineers were laid off, so they had to drive their cars & vans down to Exeter...Once they had been signed off, they were effectively told "find your own way home"...no money for transport at all..

Edited June 23, 2013 by Dave Beans

[vin rouge]

Hailey's ownership of Comet has proved highly contentious. It bought Comet for £2 and was given £50 million by the previous owner, French electrical chain Darty, in a move interpreted as a way of distancing itself from bankruptcy...........

Hailey Acquisitions was set up by private equity firm OpCapita to enable a collection of secretive investors to put their money into Comet.

£2 - Why a collection of investors? Did they have a whip round down the pub? And will they be brass necked enough try to use these tax losses to offset the tax they would have to pay on the £59,999,998 profit they made on the purchase of Comet from Darty?

[OnionTerror]

...surprise surprise, opCapita make nearly £70m by putting it into administration - on a two quid "investment"...then all other creditors get 1p in the pound....Un-arseing-believable

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10375368/Comet-owner-to-recoup-117m-from-electrical-retailers-collapse.html

Almost £117m is to be returned to Henry Jackson’s OpCapita and its backers from the demise of electrical retailer Comet, according to new documents.

Accounts from Hailey Acquisitions Limited (HAL), the vehicle OpCapita used to buy Comet for £2 last year, show that it expects to recoup £67.9m from the administration process and also that it had £49m of cash on its balance sheet when the electrical retailer collapsed.

HAL says in the accounts that in February 2013 the “majority” of the cash left on the balance sheet and the funds received from the administration process were distributed to its parent company, a Cayman-based vehicle called Hailey Holdings Ltd. Comet collapsed into administration last November with the loss of almost 7,000 jobs. Vince Cable’s Department for Business, Innovation and Skills is conducting a review into the retailer’s failure, which resulted in the closure of all of its stores in the UK, over concerns about “malpractice”.

The HAL accounts also show that two days before Comet went into administration on November 2, it acquired a £30m loan from PNC Financial Services that was being used to fund the retailer. This meant that HAL was the only secured creditor in Comet.

The cash on the HAL balance sheet is understood to include debt that was acquired from previous Comet owner Kesa as well as monitoring fees and interest paid by Comet.

HAL, which also controls Comet’s profitable warranty business Triptych, states in the accounts that it was owed £141.6m by Comet. It therefore took a £73.7m write-down for the year, dragging it to a pre-tax loss, to represent the shortfall between the £67.9m payout from the administration and its total debt. However, these debts are thought to include funding for Comet that was left by Kesa through a £50m dowry.

Despite the payments to HAL, Deloitte has warned that unsecured creditors, who are owed £232m, will get less than 1p in the pound. The creditors include suppliers, landlords and HMRC. The failure of Comet is likely to eventually cost £50m in redundancy fees and unpaid tax.

Deloitte, the administrators, has so far been paid £10m in fees, while insolvency adviser GA Europe has earned £7m. Deloitte confirmed earlier this month that it was ending the administration process for Comet and beginning a creditors’ voluntary liquidation. The administrator has said it instructed independent legal adviser Mayer Brown to review the security held by HAL over Comet’s assets and found it to be “valid”.

HAL declined to comment.

I bet they declined to comment...

[billybong]

At the time there were few if any "bargains" for Comet's customers.

Lots of stuff in the liquidation "sale" was being displayed at prices quite a lot above identical stuff in nearby Argos.

[billybong]

It's fascinating how one company (Hailey) can "own" another company (Comet) but not be responsible for its losses and it can be allowed to go bust and presumably shareholders take the entire loss. Even after an apparent upfront payment of £50 million from the previous owners that would seem to have covered the losses.

Then the original buying company (Hailey) comes along afterwards and effectively lays claim to the losses but only to gain a tax reduction on Hailey's own profits (including the £50 million upfront payment as profit?).

Added to that apparently the company going bust (Comet) hadn't paid several £millions of its tax before going bust. So who knows but maybe in the crazy world of accountancy it's just possible that the unpaid taxes are additional losses (losses but only for tax purposes ) that Hailey can lay claim to.

Fascinating.

It's no wonder there were few if any bargains for Comet customers during the liquidation.

Edited October 14, 2013 by billybong

[OnionTerror]

At the time there were few if any "bargains" for Comet's customers.

Lots of stuff in the liquidation "sale" was being displayed at prices quite a lot above identical stuff in nearby Argos.

There were "bargains" if you got in there quick...I'm an ex employee, and I managed to save £400...£200 on this very Laptop I'm typing on (virtually brand new, off display), and £200 off a Bosch washing machine.

During the manic last three days of trading, head office produced a spreadsheet, instructing how much discount you could apply at the till, for certain lines...20%, 30% off, whatever...everything off display was 50% off...

It was so confusing, that we just applied whatever discount...If I was savvy, I could have got family members in, and apply whatever discount I'd liked...what were they going to do? Sack me? Trouble was that I was too honest!

One of my colleagues was hoarding a number of sets of expensive £200 headphones...I think they went through at something like £30 quid or something (so I heard)...There were certain families who were buying stuff, loading up their car, then coming in again...virtually spending the whole day in there...There was stuff like new Dysons that never sold, as we could only discount properly if the display stock had gone...No one wanted to save half price on a display Dyson, if they could get 30% off a new one...so the display model never went...

On the last day, proper wooden AVF TV stands were going at 90% off..so 40 quid for a 400 quid stand...these didn't sell...I was only when it was too late, and looked on ebay that night, that they were going for at least £200-£250 each...could have made a killing on ebay...

Edited October 14, 2013 by Dave Beans

[billybong]

I'm not saying there weren't any bargains at all and likely the staff would get a lot of any real ones (I don't blame them) but for the customers any tended to be later in the sale (which lasted weeks) as the display discounts increased. For sure there were reductions on the displayed prices and some quite large ones but in comparison to other retailers normal prices generally speaking for the customers they were pretty unimpressive even at the end of the sale - for a liquidation sale. At the time it helped clarify one of the reasons they went bust.

Then the shops were closed and likely the bulk sold at decent discounts to the trade - auctions etc.

Edited October 14, 2013 by billybong

[OnionTerror]

I'm not saying there weren't any bargains at all and likely the staff would get a lot of any real ones but for the customers any tended to be later in the sale (which lasted weeks) as the display discounts increased. For sure there were reductions on the displayed prices and some quite large ones but in comparison to other retailers normal prices generally speaking for the customers they were pretty unimpressive even at the end of the sale - for a liquidation sale. At the time it helped clarify one of the reasons they went bust.

Then the shops were closed and likely the bulk sold at decent discounts to the trade - auctions etc.

Were were one of the first 27 stores to close...we had three days to clear what stock we had, then two days to dismantle the store...the fittings were scrapped, and the company got tuppence for it...I feel sorry for the rest, and the rest of the closures was strung out over the next month...What stock we didn't budge, went to other stores in the area...basically the crap..

Yep, the rest was to clearance centres or auction houses...I think one of the pound type shops bought up a lot of stock as well..cables and wotnot...

So opCapita make 70 million, and the tax payer have to fork out 50 million on redundancies...There's also an on-going dispute with them, due to their lack of notice..should have been 90 days, rather than the 5-30 days...

Edited October 14, 2013 by Dave Beans

[Bloo Loo]

I'm not saying there weren't any bargains at all and likely the staff would get a lot of any real ones (I don't blame them) but for the customers any tended to be later in the sale (which lasted weeks) as the display discounts increased. For sure there were reductions on the displayed prices and some quite large ones but in comparison to other retailers normal prices generally speaking for the customers they were pretty unimpressive even at the end of the sale - for a liquidation sale. At the time it helped clarify one of the reasons they went bust.

Then the shops were closed and likely the bulk sold at decent discounts to the trade - auctions etc.

Im afraid it is the law that encourages maximum price for bankrupt stock..they have to try for the benefit of creditors otherwise they could be liable in a suit,,,,they have to show they tried to get the best price....if it all fails, then its off to auction and the trade.

Same with houses.

[Saving For a Space Ship]

Haileys' Comet ?

[thevaliant]

I thought this could only be done if the company making the claim was in the same trade as the one that made the losses. Since Comet stopped trading and Hailey I presume don't still sell electronics then this shouldn't be possible. No doubt they've better accountants than me though.

Correct, they have to be in the same trade. In fact, what they have to do is buy (out of administration) the Comet company (whatever that is .... Comet Limited or something) and then that company has to restart trading, in the same trade as before to utilise it's losses.

In theory, quite difficult to do.

In practice, very easy. Buy the company, and then pass management charges through it. When HMRC get a bit shirty about 'same trade' rubbish, just hire a firm of accountants to argue it is. Usually HMRC back down because they can't be bothered with the fight.

[billybong]

Im afraid it is the law that encourages maximum price for bankrupt stock..they have to try for the benefit of creditors otherwise they could be liable in a suit,,,,they have to show they tried to get the best price....if it all fails, then its off to auction and the trade.

Same with houses.

Indeed in an official capacity they can't be seen to be "giving them away" and in that they did seem to succeed. From a shoppers perspective.

[goldbug9999]

It's fascinating how one company (Hailey) can "own" another company (Comet) but not be responsible for its losses a

Well thats kind the whole point of having a legal entity called a "company" - to limit liability hence the "L" in PLC and LTD.

The limitation of liability principal applies uniformly irrespective of whether a company is owned by a private individual or another company. When one company owns another they are still separate entities from a legal and accounting point of view. Without this then noone would ever buy stock in a company because they would have be responsible for covering unlimited losses potentially.

[porca misèria]

I think the basic principle at issue here is how you can acquire accounting losses (which can be offset against tax) without at the same time taking responsibility for the debts.

Real companies (like Vodafone) have got some stick for acquiring loss-making companies and using their tax losses. But C&W's creditors got all their money. Spot the difference!

[billybong]

Well thats kind the whole point of having a legal entity called a "company" - to limit liability hence the "L" in PLC and LTD.

The limitation of liability principal applies uniformly irrespective of whether a company is owned by a private individual or another company. When one company owns another they are still separate entities from a legal and accounting point of view. Without this then noone would ever buy stock in a company because they would have be responsible for covering unlimited losses potentially.

Indeed but it's still fascinating how they can then, after the bankruptcy, make claim for the losses for tax deduction purposes - and (from an earlier post) apparently only pretend to trade for a period before they presumably just close down the company (except maybe if they can see an opportunity to do stuff like transfer more losses to that company and go through the bankruptcy, make claim to tax losses cycle etc yet again). There seems to be a real incentive towards bankruptcy in some cases and in some situations - rather than concentrating efforts on making the company more successful.

Maybe the system should allow individual shareholders who took a loss as shareholders to lay claim to (a proportion of?) the company losses to use them to mitigate their loss (as well as using their own shareholding losses for tax purposes).

The taxpayer seems to be losing both ways - from loss of various tax earnings from a successful company as well as loss of tax through Hailey laying claim to Comet's losses for tax purposes.

At least Hailey (and Comet at one stage) seem to be paying some taxes? which is more than some businesses seem to do.

I'm all for helping businesses in any reasonable, honest and within the law way possible but it seems that these days the balance has shifted well beyond what is fair and reasonable from all points of view - and the shopper has also lost what was a reasonable shopping experience in visiting a Comet shop even if the shop was usually (not always) far too expensive to buy stuff from in comparison to prices elsewhere.

Edited October 14, 2013 by billybong

[OnionTerror]

The taxpayer seems to be losing both ways - from loss of various tax earnings from a successful company as well as loss of tax through Hailey laying claim to Comet's losses for tax purposes.

..and us paying 50 million towards redundancy payments