Bob Willott on the bottom line

BOB WILLOTT

For five years the accounts of Leagas Delaney London have shown that it has issued share capital of just over £1,250,000.  Such capital is regarded as the bedrock of most businesses and gives suppliers comfort that a company is well funded for the longer term.

It sometimes happens that shares are issued on either a partly paid or unpaid basis, in which case this is made clear in the accounts.  No such concerns would have been aroused at Leagas Delaney London because its accounts stated quite explicitly that preference shares with a face value of £1.25 million had been “fully paid”.

So it may come as a surprise to learn that those preference shares have never been paid for.  The holder of the shares – parent company Leagas Delaney – simply left the unpaid amount as an outstanding debt.

Now the group has faced up to reality.  It has acknowledged that the preference shares had not been paid for.  It has explained that the shares were originally issued to provide some security for an amount borrowed by the parent from Lloyds TSB Bank to purchase the Leagas Delaney agencies back from the administrators when they became insolvent at the end of 2003.  And as that banking arrangement was extinguished in August 2006, the company has decided to unwind the preference share issue that had never been paid for and to cancel the shares. 

So everything’s sorted out – except for the reason why Leagas Delaney London published accounts for several years showing £1.25 million of share capital had been paid for when that was never the case.

Fortunately things have been looking up at Leagas Delaney recently.  With partially owned subsidiaries operating in Italy, Czechoslovakia and Germany, its revenues and profits benefitted from favourable foreign currency movements of about £150,000 last year. 

Group profits before tax – including those attributable to minority shareholders in each subsidiary – totalled a healthy £775,680.  After deducting those minority interests and tax, a little over £260,000 of the group’s profit was left for parent company shareholders Tim Delaney and Margaret Johnson to enjoy.

Ostensibly Lloyds TSB Bank also has an interest in any profits accruing to the parent company’s shareholders as it is entitled to receive £150,000 out of any distributable profits earned after September 2006.  Alas it's not too clear whether sufficient of the group’s profits have flowed up to the parent company to enable such a dividend to be paid.

© Fintellect Ltd