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Subocean Limited (in Administration)Court of SessionCase No. P40 of 2011

Joint Administrators’ progress report for the period 28 July 2011 to 27 January 2012

9 March 2012

Contact details for queriesContact Address Direct line E-mail Fax

Scott Walker PricewaterhouseCoopers LLP, 32 AlbynPlace, Aberdeen, AB10 1YLwww.pwc.co.uk/subocean

0131 524 2367 [email protected] 01224 253 329

Contents_________________________________________________________________________________________

_________________________________________________________________________________________________________________Subocean Limited (in Administration) 1

Section Pages

1 Joint Administrators’ progress report for the period 28 July 2011 to 27 January 2012 2 – 5

2 Statutory and other information 6

3 Receipts and payments account for the period 28 July 2011 to 27 January 2012 7

Appendix A Proposed Scheme of Division

Appendix B Analysis of the Administrators’ remuneration and disbursements for the period 28 July 2011 to 10 December2011

Appendix C A creditors’ guide to Administrators’ remuneration (Scotland)

1. Joint Administrators’ progress report for the period 28 July 2011 to 27 January 2012_________________________________________________________________________________________


Introduction

In accordance with Rule 2.38 of the Insolvency (Scotland) Rules 1986(“ISR86”), the Joint Administrators (“the Administrators”) write toprovide creditors with details of the progress of the Administration ofSubocean Limited (“the Company”) in the period since the Administrators’first progress report to creditors dated 25 August 2011.

Background information and initial actions taken by theAdministrators

The position of the Company at the date of the Administrators’appointment on 28 January 2011 was summarised in the Administrators’proposals dated 23 March 2011.

Sale of business and assets

Immediately following their appointment, the Administrators sold thebusiness and assets of the Company, along with the business and assets ofthe related entities Subocean Group Limited (“SOGL”) and SuboceanGroup (Holdings) Limited (“SOGHL”) to TPG (UK) Limited (“TPG”), awholly owned subsidiary of Technip UK Limited. SOGL and SOGHL werealso placed in Administration on 28 January 2011.

Details of the sales process undertaken by the Administrators wassummarised in the Administrators’ proposals dated 23 March 2011 and inour initial letter to creditors dated 8 February 2011.

Realisation of other assets

The only assets of the Company not sold to TPG on 28 January 2011 butshown in the directors’ Statement of Affairs were a number of extantinsurance claims and cash balances.

Insurance claims

Rhyl Flats insurance claimEstimated to realise by directors: £nilActual realisation: £825k

Prior to our appointment, the Company’s insurer had rejected this claimand the Company’s directors had estimated that there would be norealisable value from it.

We disputed the basis of the insurer’s rejection and used legal advisors tothreaten legal action to recover sums due under the insurance contract. Asa result, the insurer appointed loss adjusters to assess the claim.

The quantum of the claim justified significant investigation work and theAdministrators spent several months collating evidence of losses incurredto substantiate the claim. The Company’s directors attended severalmeetings to assist us with that work.

Following submission of evidence substantiating the claim to the lossadjuster, a meeting was held between the Administrators’ staff, the lossadjuster, some of the Company’s directors and the Company’s insurancebroker on 30 September 2011. The loss adjuster agreed on 15 November2011 that the claim should be settled at £975k, less the policy excess of£150k and on 29 November 2011 submitted a final report to the insurersetting out the basis of the proposed adjusted settlement.

On 16 December 2011 the Administrators were advised by the Company’sinsurance broker that the insurer had agreed to a net settlement of £825k.The sum of £824.5k was received in full on 12 January 2012.

There will be no further realisations from the Rhyl Flats insurance claim.



Thanet insurance claimsEstimated to realise by directors: £190k(without knowledge of premium payment dispute)Actual realisation: £75k

There were six separate claims that comprised the Thanet insuranceclaims. The directors had estimated that these claims would realise £190k,having signed settlement papers for four of the claims prior to theAdministrators’ appointment.

The insurer reviewed the premiums paid by the Company following theAdministrators’ appointment. It concluded that only an initial paymenthad been made by the Company in relation to that policy’s premiums anddemanded further premiums of c.£186k. It offered to settle the claimswith the Administrators for c.£4k.

The Administrators’ disputed the basis of the additional premiumcalculations and threatened to take legal action to recover sums due to theCompany under the contract of insurance.

The insurer agreed to terminate the insurance policy from the date it wasimplemented and to refund all premiums paid, less the broker’scommission. The Administrators agreed to settle the claim on this basisand on 19 October 2011 received a settlement of £75.6k.

There will be no further realisations from the Thanet insurance claims.

Baltic Sea Insurance ClaimEstimated to realise by directors: £nilActual realisation: £nil

The insurer offered to settle this claim for £129k against losses sufferedtotalling £159k. However, the offer of settlement was subject to significantpolicy excesses (£60k) and payment of outstanding premiums whichsignificantly exceeded the settlement figure.

As there was no commercial benefit in pursuing the claim theAdministrators did not pay up the premiums and no further action wastaken.

There will be no realisations from the Baltic Sea insurance claim.

Cash balances

The sum of £7k was realised from monies held by Pinsent Masons LLP intheir client account. This figure was not included in the directors’Statement of Affairs.

Petty cash totalling £3.5k was realised shortly after the Administrators’appointment.

No further realisations of cash balances are expected.

Intercompany balances

The directors’ Statement of Affairs included a balance of £4,154k due tothe Company from SOGL. The Administrators’ have obtained supportinginformation from the directors in relation to this balance and have lodgeda claim on behalf of the Company in the Administration of SOGL.

Creditors’ claims in the Administration of SOGL are being adjudicatedupon, but it is anticipated that the sum of £4,154k due to the Company bySOGL will rank for a prescribed part dividend in the Administration ofSOGL. This will potentially result in an asset realisation in the Company’sAdministration. Due to uncertainty over the final level of ordinaryunsecured creditors’ claims in the Administration of SOGL, and theongoing adjudication of those claims, only an estimate of the dividend dueto the Company can be made at present.

Other than any prescribed part dividend received from the Administrationof SOGL, there will be no other asset realisations from the intercompanybalance due to the Company by SOGL.

Other issues

Due to the significant number and quantum (c.£50m) of unsecuredcreditors and the immediate sale of the Company’s business and assets, theAdministrators and their staff have continued to spend time responding tocreditor enquiries and collating information to support creditor claims.



The Company’s former operating activities, which included operatingseveral leased ships and barges, gave rise to a number of claims fromvessel owners and third parties for damage caused during the course of theCompany’s former business. We have spent time liaising with insurers andlegal advisors in relation to those matters.

The Administrators have complied with their statutory obligations underthe Company Directors’ Disqualification Act 1986 to consider the conductof any director of the Company in the three years prior to the Company’sAdministration. The Administrators have submitted all relevantdocumentation to fulfill that statutory duty. The contents of thedocumentation prepared by the Administrators on the directors’ conduct islegally privileged and cannot be discussed.

Power to distribute to unsecured creditors

In terms of paragraph 65 of Schedule B1 to The Insolvency Act 1986, theAdministrators petitioned the Court of Session seeking power to makedistributions to unsecured creditors of the Company.

On 10 November 2011 the Court of Session authorised the Administratorsto make distributions of the prescribed part of the Company’s net propertythat is to be made available to the Company’s unsecured creditors in termsof section 176A of The Insolvency Act 1986.

Extension of the period of Administration

It took considerable time and effort to collate information in support of theCompany’s Rhyl Flats insurance claim and to obtain a settlement of £825kfrom the insurer. Whilst it was hoped that this matter would have beenconcluded with the remittance of the £825k net settlement prior to 27January 2012, the Administrators did not wish to prejudice the position bypreparing to close the Administration whilst the insurer had not remittedthe settlement proceeds. In addition, as the settlement proceeds were notreceived until within a few weeks of the anniversary of the Administration,it was not practicable to adjudicate upon creditors’ claims, declaredividends and ensure all dividends had been banked by creditors prior to27 January 2012.

Accordingly, the Administrators requested and obtained the consent of theCompany’s secured and preferential creditors to extend the period of theAdministration by six months to 27 July 2012.

Receipts and payments account

An account of the receipts and payments in the Administration for theperiod 28 July 2011 to 27 January 2012 is set out in section 3 to this report.

Receipts in the period comprise:

insurance settlements totalling £900,108.00 comprised of £75,600.00in relation to the Thanet insurance claims and £824,508.00 in relationto the Rhyl Flats insurance claim; and

interest received gross totalling £1,306.58.

Payments in the period comprise:

office holder’s fees of £200,091.85 and disbursements of £6,276.39relating to time costs and out of pocket expenses incurred;

corporation tax of £135.98; and

bank charges totalling £23.72.

Outcome for creditors

There are no preferential creditors in the Company’s Administration.

It is anticipated that the Company’s first and second ranking floatingchargeholders will be repaid in full. It is estimated that the Company’sthird ranking floating charge holder will suffer a shortfall under itssecurity. There will be no funds available to the Company’s fourth rankingfloating chargeholder.

The Administrators expect there to be funds available for distribution tothe Company’s ordinary unsecured creditors by virtue of the prescribedpart. The timing and level of that dividend is subject the final quantum of

2. Statutory and other information_________________________________________________________________________________________


Court details for the Administration: Court of Session P40 of 2011Full name: Subocean LimitedTrading name: Subocean LimitedRegistered number: SC285271Registered 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 SinclairShareholdings held by the directors and secretary: NoneDate of the Administration appointment: 28 January 2011Administrators’ names and addresses: J Bruce Cartwright, Ian D Green and Toby S Underwood of

PricewaterhouseCoopers LLP, 32 Albyn Place, Aberdeen, AB10 1YL.Changes in office holder: NoneAppointor’s / applicant’s name and address: The directors, Sixth Floor, Union Plaza, 1 Union Wynd, Aberdeen, AB10 1DQObjective 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 inAdministration). 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, anyact required or authorised under any enactment to be done by anyAdministrator may be done by any of the Administrators acting jointly oralone.

Details of any extensions to the initial period of appointment: Extended with the consent of the Company’s secured and preferentialcreditors to 27 July 2012

Proposed end of the Administration: DissolutionEstimated dividend for unsecured creditors: 0.82p in the £Estimated values of the prescribed part and the Company’s netproperty:

Estimated value of prescribed part is £537,904 and estimated value of netproperty is £2,674,519

Whether and why the Administrators intend to apply to courtunder Section 176A(5) IA86:

The Administrators do not currently intend to make an application to Courtunder Section 176A(5) of IA86 to disapply the prescribed part.

The European Regulation on Insolvency Proceedings (CouncilRegulation (EC) No. 1346/2000 of 29 May 2000):

The European Regulation on Insolvency Proceedings applies to thisAdministration and the proceedings are main proceedings.

3. Receipts and payment account for the period 28 July 2011 to 27 January 2012


Appendix A – Proposed Scheme of Division

_________________________________________________________________________________________________________________Subocean Limited (in Administration)

Notes:

1. All figures are exclusive of VAT.

2. Creditors’ claims are subject to adjudication. The amount of creditors’ claims actually admitted to rank for dividend purposes may be different tothose shown as received above. Any change will affect the amount of the dividend payable to creditors.

Subocean Limited (in Administration)

Proposed Scheme of Division as at 27 January 2012£

Funds held as at 27 January 2012 2,633,214.13

Estim ated prescribed part div idend from Subocean Group Lim ited (in Adm inistration) 1 3 ,7 33.67

Input VAT reclaim 41 ,27 3.65

Estim ated future gross bank interest incom e 500.00

Estimated total realisations [A] 2,688,721.45

Legal fees (1 5,000.00)

Adm inistrators' estim ated rem uneration to case closure (25,000.00)

Adm inistrators' estim ated disbursem ents to case closure (1 ,000.00)

Corporation Tax (1 ,000.00)

Bank charges (1 ,000.00)

Estimated future costs of realisation [B] (43,000.00)

Add back: Adm inistrators' tim e costs already paid in relation to prescribed part 28,7 98.00

Funds available to preferential creditors [A +B] 2,674,519.45

Preferential creditor claim s receiv ed -

Net property [C] 2,674,519.45

Summary of estimated dividends

Prescribed part

50% of first £1 0,000 (5,000.00) Preferential creditors' claim s per Statem ent of Affairs: (£8,1 93)

20% of am ount av ailable abov e £1 0,000 (532,903.89) Preferential creditors' claim s receiv ed [E]: -

Prescribed part available to ordinary unsecured creditors c/f [D] (537,903.89) Funds av ailable for preferential creditors [F]: -

Preferential dividend pence in £ [F/E]: 100p

Funds available to floating charge holders [C + D] 2,136,615.56

HSBC Equipment Finance (UK) Lim ited - Floating charge creditors' claim s per Statement of Affairs: (£25,7 48,1 7 5)

HSBC Asset Finance (UK) Lim ited - Floating charge creditors' claim s receiv ed [G]: (£25,642,527 )

HSBC Bank plc (2,1 36,61 5.56) Funds av ailable to floating charge holders [H]: 2,1 36,61 6

Lloy ds TSB Dev elopm ent Capital Lim ited - Secured creditor dividend pence in £ [H/G]: n/a

Surplus available to ordinary unsecured creditors -

Prescribed part for ordinary unsecured creditors b/f [D] 537 ,903.89 Ordinary unsecured creditors' claim s per Statem ent of Affairs: (£49,888,27 9)

Less: Adm inistrators' tim e costs in relation to prescribed part already paid (28,7 98.00) Ordinary unsecured creditors' claim s receiv ed [I]: (£57 ,47 2,083)

Adm inistrators' estim ated rem uneration to finalise and m ake prescribed part distribution (35,000.00) Funds av ailable for ordinary unsecured creditors [J]: £47 3,1 05.89

Adm inistrators' estim ated disbursem ents to m ake prescribed part distribution (1 ,000.00) Ordinary dividend pence in £ [J/I]: 0.82p

Funds available for distribution to ordinary unsecured creditors 473,105.89

Appendix B – Analysis of the Administrators’ remuneration and disbursements for the period28 January 2011 to 10 December 2011


Narrative of work carried out for the period 28 January 2011 to 10 December 2011

To assist creditors in interpreting the above analysis of our time costs, we summarise the areas of work referred to in the time analysis above. Our charging

policy was to charge all grades of staff working on the case to the Administration directly.

Administration and planning comprises case planning, administrative set-up and strategy matters. It was primarily the Administrators and seniorstaff who were involved in setting case strategy, although more junior staff were involved in meetings to ensure that the Administrators’ strategy waseffectively implemented.

Creditors – Enquiries relates to time spent responding to creditor enquiries following the Administrators’ appointment and to periodic requests forupdates. The directors listed in excess of 400 creditors in their Statement of Affairs with an estimated value of ordinary unsecured claims totallingc.£50m. As a result of the immediate sale of the Company’s business and assets on the appointment of the Administrators, we dealt with an unusuallyhigh volume of creditor enquiries. A number of creditors claiming Retention of Title to goods and ownership of leased assets were attended to and



referred to TPG, the purchaser of the Company’s business and assets. We assigned experienced but more junior members of our team to respond tocreditor enquiries to minimise time costs.

Creditors – Reporting relates to formal reports to creditors, including the Company’s secured creditors to establish their views in relation to agreeingcase strategy and budgeting for work to investigate potential asset realisations. Reporting was generally conducted by manager grades.

Employment matters comprises work conducted in relation to the 54 redundancies and the transfer of 246 employees to TPG (employees numbersreferred to relate to both employees of the Company and SOGL). We wrote to all employees, dealt with a number of queries, and collateddocumentation for submission to the Redundancy Payments Office.

Insurance claims comprise time spent investigating and pursuing insurance claims, including the Rhyl Flats and Thanet claims. We spent significanttime reviewing the Company’s records including recalling records from storage, meeting with TPG’s project staff who had first-hand knowledge of theunderlying incidents and liaising with insurers, insurance brokers, loss adjusters and the Company’s directors. We also sought legal advice in relationto specific contractual matters. We primarily utilised experienced Senior Associates to collate information, assisted by a Manager to challenge, setand drive strategy. We note that the time spent investigating insurance claims has prolonged the Administration and increased nearly all aspects ofour costs, particularly our statutory & compliance costs. However, we consider the strategy to pursue these claims and to invest that time resulted in asignificantly better outcome for all classes of creditors than if we had not done so, through the net realisation of £825k in relation to the Rhyl Flatsinsurance claim.

Statutory and Compliance time costs comprise the initial statutory notifications of the Administrators’ appointment and the Administrators’ statutoryduties and responsibilities. Such duties involved preparing the initial letter to creditors, including the detailed disclosures required by Statement ofInsolvency Practice 16 (Scotland), calling and holding the initial meeting of creditors, preparing and issuing the Administrators’ proposals forachieving the purpose of Administration and dealing with all internal risk and compliance matters.

Trading was not conducted by the Administrators, the Company’s business and assets having been sold immediately upon the Administrators’appointment.

Unsecured claims agreement refers to our time costs in dealing with unsecured creditor claims. We have separately recorded our time costs inrelation to this work as it is specific to the funds available for ordinary unsecured creditors and, accordingly, will be applied against the prescribedpart, prior to the funds being distributed. It will not be applied against the total funds available to all creditors, including those available to theCompany’s floating charge holders. We have allocated experienced but more junior members of our team to conduct this work, subject to appropriatesupervision, to minimise time costs.

We note that in our first progress report to creditors dated 25 August 2011 we estimated that the prescribed part available to the Company’s ordinaryunsecured creditors would be in the region of £360k and that the estimated value of the Company’s net property would be £1,805k. Progressing our strategyof seeking value from the Company’s insurance claims and using appropriate, experienced staff, appears likely to improve the potential prescribed partavailable to ordinary unsecured creditors to c.£538k and the Company’s net property to £2,675k.



Disbursements for the period 28 January 2011 to 10 December 2011

Category 1 disbursements, exclusive of VAT, which relate to actual payments made by the Administrators’ firm, PricewaterhouseCoopers LLP, are set outbelow.

Appendix C – A Creditors’ Guide to Administrators’ Remuneration (Scotland)






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