Page 8 - CIMA SCS Workbook August 2018 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

It should also be noted that Jack Kenny seems to be seeking assurance that none of his staff will
be made redundant; FNG should expect such a contractual commitment to be sought as part of
any deal.

Purchase assets from an insolvency practitioner

FNG could simply bide its time and wait for DST to be declared insolvent. In such an instance, an
insolvency practitioner would be appointed with a view to raising as much capital as possible from
DST to be able to repay the debt provider and, if sufficient is raised, to pay off other creditors and
then the shareholder, Jack Kenny.

This would either be by means of an administrator, who would seek to sell the company as a
going concern; or a liquidator, who would sell the assets of DST on a piecemeal basis.

It is unlikely that an administration would work in this instance; if Jack Kenny cannot sell DST for
$1, the insolvency practitioner is unlikely to be able to do the same.

This therefore makes liquidation much more likely, and FNG would be able to negotiate with the
liquidator. Even though it is state of the art, there will be a limited market for the purchase of a
newspaper print factory in Borland, given the general situation in the industry. This therefore
means that FNG may be able to negotiate a good deal.

However, other newspaper companies may be attracted by the DST factory as well; if it is
appealing to FNG, why might other publishers see value in it as well? This could therefore result in
a bidding war, and FNG would need to calculate a maximum sum it would be prepared to pay to
acquire the factory and not exceed that value.

The 28 titles would also be seen as an asset that can be sold and, again, FNG would be able to
select which it might wish to bid for.

Naturally there is a risk with this plan that DST does not actually go insolvent; another company
may rescue it, or the management may be able to turn it around.

Alan Finch should also recognise that, if he is friends with Jack Kenny, such a tactic may be seen as
a betrayal after Jack had been so frank with him about DST’s situation, and it could permanently
damage their friendship.

KAPLAN PUBLISHING 67