Chrysalis VCT: liquidation

[scotia]

There is a further report from the liquidator dated 24th January 2023, available at
https://www.downing.co.uk/existing-investor/chrysalis-vct
There appears to be a delay in the repayment of the vendor loan, associated with the Coolabi transaction

The Company’s final investment, being that in Coolabi Limited, has now been sold, with proceeds of
£3.6 million being received. The transaction required the Company to make a vendor loan to the buyer
of £1.676 million which was expected to be repaid on or before 31 December 2022.
We understand that has been a delay with a fundraising being undertaken by the buyer which is
delaying the repayment of the vendor loan. The investment manager is monitoring the situation
closely, seeking to ensure that redemption now takes place as soon as possible. Assuming the vendor
loan is repaid as planned in the near future, I estimate that a further and final distribution of at least
5p per share will be able to be made to the Company’s Shareholders.
Any further delays in the repayment of the vendor loan may require further action and could
significantly delay the payment of a final distribution to Shareholders, which may then be substantially
less than 5p per share.

[yorkshirelad1]

There is a further report from the liquidator dated 24th January 2023, available at
https://www.downing.co.uk/existing-investor/chrysalis-vct
There appears to be a delay in the repayment of the vendor loan, associated with the Coolabi transaction

The Company’s final investment, being that in Coolabi Limited, has now been sold, with proceeds of
£3.6 million being received. The transaction required the Company to make a vendor loan to the buyer
of £1.676 million which was expected to be repaid on or before 31 December 2022.
We understand that has been a delay with a fundraising being undertaken by the buyer which is
delaying the repayment of the vendor loan. The investment manager is monitoring the situation
closely, seeking to ensure that redemption now takes place as soon as possible. Assuming the vendor
loan is repaid as planned in the near future, I estimate that a further and final distribution of at least
5p per share will be able to be made to the Company’s Shareholders.
Any further delays in the repayment of the vendor loan may require further action and could
significantly delay the payment of a final distribution to Shareholders, which may then be substantially
less than 5p per share.

Thanks: not seen my copy of the report which usually comes via e-mail, so thanks for the heads-up.
report is at the bottom of the page of the above url.
Here's the direct url to the pdf of the report
https://assets-us-01.kc-usercontent.com/8c961317-6aee-00a7-e4b6-ae38cd847d2d/65b031bd-74f5-48f4-9caf-c3703c3c9332/Chrysalis%20VCT%20Liquidators%20Progress%20Report%20to%2026.11.22.pdf

[wilwak9]

Oh that’s disappointing,

It sounds like they lent the buyer of Coolabi a good chunk of the money it needed to buy it.

Let’s hope it’s secured on something of value otherwise it seems Chrysalis has been done over!

[Kidman]

I don't think that should be any surprise to us.

The ex-directors who are now taking our money to run the liquidation obviously failed to make a decent contract when they sold the Coolabi holding. A vendor loan is reasonable but only if it is secured and has penalty rates for late payment. It sounds to me like they haven't a leg to stand on, we will probably miss out on most of the 5p and the ex-directors will take some of the difference as their fees. I voted against their appointment.

At least if we set our expectations as nothing more then anything will be a bonus.

[scotia]

I tried to find more information on the state of the vendor loan, but didn't make much progress.
It appears that Talenthouse (registered in Switzerland) purchased all of the shares in Coolabi, with the finance coming from Kartesia.
See https://www.kartesia.com/newsroom/kartesia_provides_financing_for_acquisition_of_coolabi_group_by_talenthouse which is dated 7th July 2022.

Kartesia, the European specialist provider of capital solutions for small and mid-sized companies, today announces that it has provided a senior financing package of up to £41m to support Talenthouse AG with their acquisition of the remaining shareholding in Coolabi Group Ltd (Coolabi).

On 12th October 2022, there was a press release from Talenthouse concerning the purchase of Coolabi
https://www.prnewswire.co.uk/news-releases/talenthouse-acquires-coolabi-to-deepen-its-creative-proposition-within-the-ip-and-brand-licensing-space-301646566.html
which contained the following

Having acquired an initial 33% shareholding in Coolabi in 2021, Talenthouse has acquired the remaining 67% and now owns 100% of the share capital of Coolabi. The completion was made possible by the use of new debt facilities from Kartesia, our institutional partner, to refinance the existing vendor loans.

From this information it appears that any vendor loans were re-financed from the Kartesia finance package. So why is the Chrysalis vendor loan outstanding?
I couldn't find any later relevant info.

[wilwak9]

Thanks for the research. Really interesting.

The recent announcement did seem to imply that if the vendor didn’t pay the loan off then we lose. There’s no recourse.

On the face of it it sounds like a poor deal by the directors but maybe they were simply in a ‘take it or leave it’ situation and thought getting part payment in cash and the rest as a loan was the only way to get the deal done.

Let’s hope some sort of recovery is made. I was all set for another 5p over the next few months.

[yorkshirelad1]

https://www.downing.co.uk/existing-investor/chrysalis-vct has been updated to advise of the delay re Coolabi.

Update 30 January 2023: Further to the Shareholder Update issued in August, the repayment of the vendor loan to Chrysalis VCT in respect of the sale of Coolabi Limited, which had been expected by 31 December 2022, has been delayed. The Company will update shareholders when there is further news.

The same page lists other communications, but makes no explicit mention of the Jan 2023 Liquidator's report near the top of the page (in chronlogical order) which has the same information on Coolabi. You have to hunt down the bottom of the page (under 'Other documents') for the Jan 2023 Liquidator's report, and I still haven't received a copy of Jan 2023 Liquidator's report, either via snail-mail or e-mail (I'm a direct shareholder, and did receive the Jan 2022 Liquidator's report via e-mail). While the directors & liquidators are busy paying themselves, the level of shareholder communication has not kept up...)

[scotia]

and I still haven't received a copy of Jan 2023 Liquidator's report, either via snail-mail or e-mail (I'm a direct shareholder, and did receive the Jan 2022 Liquidator's report via e-mail). While the directors & liquidators are busy paying themselves, the level of shareholder communication has not kept up...)

Yes - I had been watching the Downing-Chrysalis Site, and that's how I discovered the Liquidator's report of 24th Jan 2023. Usually these reports arrive by snail mail - but nothing so far. Maybe a slow snail?
But even when (or if) this report arrives in paper form, we will be no further forward in learning why there is a delay in the repayment of the vendor loan. The liquidator appears to suggest that the repayment could range from the full amount down to very little. But there is no explanation as to why. The new owner of Coolabi (and the recipient of vendor loan) appears to be Talenthouse with financial backing from Kartesia. But I have found nothing published on the Web to suggest that either of these appear to be in financial trouble. So why the delay in the repayment?

[wilwak9]

Yes, very vague and difficult to understand the reasons for the delay.

The question is…. If the buyer was big, solid and secure then why did they need a loan to acquire the shares?

There’s a key bit of the jigsaw that we’re clearly not aware of.

[Kidman]

"We understand that [sic] has been a delay with a fundraising undertaken by the buyer which is delaying the repayment of the vendor loan."
From the liquidator's report on the Companies House website.

If you want to try to understand the Coolabi deal here it is from page 81 of a 2022 Talenhouse share listing prospectus.
"Coolabi Purchase Agreement
On 2 March 2021, Quest signed an unconditional share purchase agreement (the "SPA") to acquire the entire issued share capital and shareholder debt in Coolabi (the "Coolabi Interest"), with completion to take place on 31 March 2021 (the "Acquisition"). Completion did not take place on 31 March 2021 as Quest was unable to satisfy the Consideration (as defined below). Therefore, on 31 March 2021, 5 May 2021 and 24 May 2021 deeds of variation to the SPA were entered into, inter alia, deferring completion until 4 June 2021. On 4 June 2021, completion took place whereby the Coolabi Interest was transferred to Quest on the basis that Quest satisfied Coolabi's secured third party debt on Coolabi's behalf (such amount being non-refundable to Quest), albeit the Consideration was still left outstanding. Quest subsequently entered into further deeds of variation with the sellers of the shares in Coolabi (the "Non-Edge Sellers") on 1 October 2021, 2 December 2021 and 26 February 2022 (under which certain extension payments were made by Quest to the Non-Edge Sellers and Coolabi). Under the terms of such deeds of variation, inter alia, Quest transferred 238,212 management ordinary A shares in Coolabi of GBP 0.1095 each, and 6,692,845 investor ordinary shares in Coolabi of GBP 0.0013 each, to the Non-Edge Sellers (such shares, the "Repurchase Shares''). In connection with such transfer, the Non-Edge Sellers granted Quest the option to repurchase the Repurchase Shares for the sum of GBP 9.00 provided that such right is exercised (a) on or before 18 March 2022 (the "Settlement Date"), and (b) contemporaneously with Quest paying the Consideration (as defined below) and Sellers' Payables (as defined below) to the Non-Edge Sellers in full. If Quest fails to satisfy the Consideration (as defined below) and Seller's Payables (as defined below) by the Settlement Date, the Non-Edge Sellers have the right to repurchase the Coolabi Interest for nominal consideration. The option was not exercised by 18 March 2022; the Non-Edge Sellers and Quest are in ongoing discussions and the Non-Edge Sellers informally confirmed, subject to receipt of USD 25 million from the proceeds of the GEM Facility (as defined below), to postpone the Settlement Date to 27 May 2022.
The Consideration comprises the sum of (a) GBP 26,811,542.20; plus (b) 10% interest per annum on GBP 25,711,428.20 (the "Base Amount") accruing from (and including) 1 March 2021 to (and including) 28 October 2021 and 20% interest per annum on the Base Amount from (but excluding) 28 October 2021 to (but excluding) the Settlement Date; plus (c) 10% interest per annum on debt of GBP 1,100,000 (the "Coutts Related Debt") accruing from (and including) 6 August 2021 to (and including) 28 October 2021 and 20% interest per annum on the Coutts Related Debt form (but excluding) 28 October 2021 to (but excluding) the Settlement Date; plus (d) the issuance by New Value AG of ordinary shares with a value of USD 2,000,000 to the Non-Edge Sellers (the "Consideration"). The Sellers' Payables comprise the sum of GBP 692,158.05 to be paid to Pula Media and Technology Limited (being one of the Non-Edge Sellers) (the "Sellers' Payables")."

[wilwak9]

Many thanks Kidman for finding that information.

It’s all perfectly clear now.

I’ll read it again tomorrow with a fresh head!

Any idea what it means?

[Kidman]

Any idea what it means?

I think the key point is that Talenthouse is trying to get the money to repay the vendor loan by an equity raise rather than money being lent to them.

They are not a big company. Although they have c 476m shares in issue they trade at about 5 rappen/centimes each so a capitalisation of CHF 24m.

An EGM on 13 January 2023 passed all resolutions relating to a capital restructure and a CHF 25m capital increase. Here are the details of the proposals:-
"Capital Restructuring Measures
The Board of Directors proposes an ordinary capital increase combined with a reduction of the nominal value of the shares. In a first step, the nominal value of the shares shall be reduced from CHF 0.10 to CHF 0.05 each. In a second step, new shares with a nominal value of CHF 0.10 each, so-called B-shares, shall be issued. The new B-shares shall be paid-up on the one hand by settlement of off-settable claims against the Company and on the other hand in cash.
As further next steps, the Board of Directors intends to propose to the shareholders, presumably at the next ordinary shareholders' meeting, to (i) create a single class of shares by splitting the B-shares and reducing their nominal value from CHF 0.10 to CHF 0.05 each (share split) and (ii) merge the shares with a nominal value of CHF 0.05 each at a ratio of up to 50:1, in order to create single registered shares with a par value of up to CHF 2.50 each (reverse share split). The share split and the reverse share split require that the new shares will be listed and admitted to trading on SIX Swiss Exchange."

Question - is the vendor loan an off-settable claim and we get shares, or do we get cash from the new shares paid for in cash?

[PeteHutch]

An EGM on 13 January 2023 passed all resolutions relating to a capital restructure and a CHF 25m capital increase. Here are the details of the proposals:-
"Capital Restructuring Measures
The Board of Directors proposes an ordinary capital increase combined with a reduction of the nominal value of the shares. In a first step, the nominal value of the shares shall be reduced from CHF 0.10 to CHF 0.05 each. In a second step, new shares with a nominal value of CHF 0.10 each, so-called B-shares, shall be issued. The new B-shares shall be paid-up on the one hand by settlement of off-settable claims against the Company and on the other hand in cash.
As further next steps, the Board of Directors intends to propose to the shareholders, presumably at the next ordinary shareholders' meeting, to (i) create a single class of shares by splitting the B-shares and reducing their nominal value from CHF 0.10 to CHF 0.05 each (share split) and (ii) merge the shares with a nominal value of CHF 0.05 each at a ratio of up to 50:1, in order to create single registered shares with a par value of up to CHF 2.50 each (reverse share split). The share split and the reverse share split require that the new shares will be listed and admitted to trading on SIX Swiss Exchange."

Question - is the vendor loan an off-settable claim and we get shares, or do we get cash from the new shares paid for in cash?

I'm no expert but it reads to me that shares will be issued to settle off-settable claims (paying off Chrysalis) and shares will be issued for cash (ie fund-raising). So I'd guess we'll have to wait for Chrysalis's shares to be issued, split, consolidated and sold before we'll get our money.

[Kidman]

An ad hoc update from Talenthouse:-

"17.03.2023
PRESS RELEASE
Ad hoc Announcement, according to Art. 53 LR
Talenthouse AG
- announces progress with its Series B fundraising, having received commitments in the amount of CHF 25m, and
- updates on its ongoing strategic review.
(Baar/Switzerland) The Board of Talenthouse AG ("Talenthouse" or the "Company") has received cash commitments in the amount of CHF 16m and commitments of shareholder loan conversions in the amount of CHF 9m for new Series B shares, supporting the capital restructuring measures (ordinary capital increase to create new Series B shares with a nominal value of CHF 0.10 each, combined with a reduction of the nominal value of the existing Series A shares to CHF 0.05 each), as approved at the Company's Extraordinary General Meeting ("EGM") on January 13th, 2023. The implementation of the capital restructuring measures requires another EGM, which the Board convocates soon.
The Company expects receipt of the new money from the fundraising round to begin in the coming days.
The receipt of the funding commitments confirms the support of investors for Talenthouse's broad strategy while facilitating the Company’s previously stated desire to review the platform business of the group."

I assume 'our' loans are part of the CHF 9m that has been committed for new 'B' shares.

[wilwak9]

Thx. Does that mean no fast cash receipt for us?

[Kidman]

I don't think anything will happen fast!

Assuming all the cash comes in for the new shares then the 'B' shares will be issued and they may be tradeable on SIX (Swiss Exchange). If so they could be sold then but I expect there will be a fairly thin market.
Some weeks or more likely months later, there will be a general meeting and the share classes will be merged and consolidated 1 for 50. That should improve liquidity but of course it is anyone's guess what happens to the price.

Another factor is that the ex-directors who are managing all the exits for the liquidator get different performance fees depending how soon they make an exit. There could be an attraction to them to sell at the first opportunity to get a better fee regardless of whether that outcome is good for us shareholders.

[wilwak9]

Thanks! I read it that way too but nice to know you’re thinking the same.

Could be a long waiting game without any certainty to the final outcome.

[scotia]

On the Downing Website https://www.downing.co.uk/existing-investor/chrysalis-vct

Update 17 May 2023: There is still no firm news regarding the recovery of the vendor loan made in respect of Coolabi Limited. The Manager is continuing to explore options with various parties seeking to achieve an optimal outcome for Chrysalis VCT shareholders. The Company will update shareholders as soon as there is firm news of a further distribution.

[wilwak9]

Oh dear. It doesn’t sound promising.

Looks like a right ‘stitch up’ where we lose.

[Kidman]

Talenthouse have not provided any ad hoc update on their share raising so we can only hope it is still progressing.
Meanwhile, this year has seen their share price drop from five to six rappen (Swiss cents) per share to under one.

I am not sure how they are keeping going let alone think that people would invest new money in them.
Even if the CYS money is eventually paid out in shares it may have a fraction of the original value due to the share price decline.
The longer this goes on any money received will be eaten up by liquidators and 'advisers' fees so I think we need to accept that we may see no more from this liquidation.