Our Ref: strk 3 Ponton Street Edinburgh EH3 9QQ DX: ED135 Edinburgh Tel: 0131 228 4994 Fax: 0131 228 4260 E-mail: skerr @McClureNaismith Direct dial: 0131 272 8354 Your Ref: Date: Rosemary Winter-Scott Accountant in Bankruptcy 1 Pennyburn Road Kilwinning Ayrshire KA13 6SA Dear Madam Richard Lo (2009/2869) We understand that you are the Trustee appointed in connection with the bankruptcy of Mr Lo. We act for Jon O’Joyce who had entered into a business relationship with Mr Lo and have been asked by Mr O’Joyce to write to you to bring to your attention a number of matters which you may wish to consider in relation to Mr Lo’s bankruptcy. 1 Mr O’Joyce was first approached by Mr Lo in [ ] with the suggestion that they establish a hostel at 8 Blenheim Place, Edinburgh through a company to be set up called Art House Initiative Limited. Although they were, effectively, to operate this as business partners, Mr Lo explained to Mr O’Joyce that due to his bankruptcy it would not be appropriate for him to be appointed as a director of the Company as this would give rise to problems in obtaining credit and bank loans. Accordingly, Mr O’Joyce fronted the company, but entirely on the understanding that profits and losses would be shared equally. In the event, the business did not trade as while the Company took leased premises, it was unable to generate income sufficiently quickly to pay the lease payments and the landlord terminated the lease. 2 Following the failure of this business opportunity, Mr Lo and Mr O’Joyce then discussed operating a similar hostel business from the property owned by Mr Lo at 20 Gilmore Place, Edinburgh. At that time, the premises at 20 Gilmore Place were also the personal residence of both Mr Lo and his parents, but as part of the arrangements agreed for the operation of the business, all members of the Lo family moved out of the premises and a lease was put in place by Mr Lo to a new company, the Lighthouse Hostel Limited, set up with Mr O’Joyce and Mr Lo both as directors and as 50% shareholders. 3 There was a concern that the grant of a lease by Mr Lo to the Company would not be considered appropriate by the Trustee in Bankruptcy, but Mr Lo assured Mr O’Joyce that the full extent of the debt remaining outstanding by him was less than £50,000 and this would be settled in full from the sale of two residential flats which Mr Lo stated he owned. 4 Neither Mr Lo nor his family living in the premises (which continues to be the case), Mr O’Joyce, on behalf of the company which he and Mr Lo had established, then arranged significant work to be carried out on the property to make it suitable for operation as a hostel, using the income generated from the initial guests to do so. It is believed the value has now increased to in excess of £600,000. However, business relations between Mr Lo and Mr O’Joyce deteriorated due to concerns over Mr Lo’s commitment to working in the business and Mr Lo then stated to Mr O’Joyce that there was a debt of £150,000 due from his bankruptcy and that the new business would therefore require to raise these funds to settle Mr Lo’s debt. 5 To persuade Mr O’Joyce to continue in the business, Mr Lo signed an undertaking that if the premises were sold, Mr O’Joyce would be entitled to 50% of the excess of the sale proceeds above the £150,000 debt. However, relations deteriorated to such an extent that Mr Lo prohibited Mr O’Joyce from attending the premises and changed the locks to stop him returning, although he retained Mr O’Joyce’s personal possessions and documentation relating to the business. 6 Discussions have continued to take place at interim periods between the two individuals to establish whether there is a basis for their business relationship continuing. However, Mr O’Joyce has at all times made it clear that for this to occur Mr Lo must first pay his full debts. There has been severe concern on the part of Mr O’Joyce that Mr Lo, having full control of the business and its cash receipts and outgoings, was not documenting matters fully. At one point in the discussions between the parties, Mr Lo advised that he was “uncertain” whether he was operating the business through the Company, as an individual or through a new company which Mr Lo had established in his own name. Our understanding is that Mr Lo now accepts that the business has been operated through the Company. 7 Mr O’Joyce has for several months been trying to persuade Mr Lo to deal with matters properly ensuring that full accounts of the business are maintained and that appropriate provision is made for payment of tax etc. However, his effective exclusion from the business has stopped him having any ability to deal with this. Further, as Mr Lo did not disclose all facts relating to his bankruptcy to Mr O’Joyce he is equally concerned that Mr Lo has not disclosed all facts to you to ensure that his debts may be paid, as until issues over Mr Lo’s bankruptcy are resolved and all payments made, there will continue to be disagreement as to how the business should operate. If you require any further information regarding the above, Mr O’Joyce is happy to meet with you. Yours faithfully Scott Kerr For McClure Naismith LLP
Posted on: Mon, 25 Nov 2013 01:09:29 +0000
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