11 Mar 2010 13:04
11 March 2010
Eco City Vehicles plc ("ECV")
Announcement re Cabvision
Introduction
As part of the reverse take-over by ECV (then called Pannal plc) of the KPM Group in October 2007, Cabvision Limited ("Cabvision"), an affiliated company of KPM Taxis, was transferred out of the KPM Group on terms described in ECV's admission document of October 2007. Following this transfer Cabvision was owned, inter alia, by relations of the three Executive Directors of ECV who are not connected to ECV. Cabvision was at that time involved as plaintiff in litigation (the "Cabvision Litigation") which started in June 2006.
Payments to Cabvision
The KPM Group had receivables from Cabvision before the take-over of the KPM Group in October 2007. These were written off in the year to 31 December 2007 as disclosed in ECV's report and accounts for that year.
At the end of January 2010 the existence of a series of payments made by KPM-UK Taxis and KPM Autos (collectively "KPM"), wholly owned subsidiaries of ECV, to Cabvision came to the attention of the Non-Executive Directors. These payments related, inter alia, to legal costs incurred by Cabvision in respect of the Cabvision Litigation (to which neither ECV nor KPM is party). They had not previously been drawn to the attention of the ECV Board and, whilst they were held on the balance sheet as a loan receivable and separately itemised and identified in the ECV accounting records, they were not separately itemised or identified in the management accounts circulated to the Board.
The total net amount paid by KPM to Cabvision between 11 October 2007 and 4 January 2010 was £520,352 which is held as a loan receivable on ECV's balance sheet. ECV separately holds a net trade receivable balance at December 2009 of £522,475 owed by Cabvision.
Payments by the Executive Directors
It has also come to light that the three Executive Directors of ECV made personal unsecured interest free loans to KPM during 2009 which, in total, amount to £512,310. The Executive Directors have agreed to apply repayment of their loans of £512,310 to satisfy the debt owed by Cabvision to KPM in the sum of £520,352. Arrangements are being made for Cabvision to repay the balance of £8,042 immediately.
Financial effect and current trading at ECV
As a result of the commitments made by the Executive Directors, the Board believes that there is to be no net adverse effect to either the balance sheet or the profitability of ECV as a result of these transactions. The Board will evaluate the recoverability of the outstanding trade receivable of £522,475 from Cabvision as part of its 2009 annual audit procedures. The Board is satisfied that ECV's financial position remains sound. Trading in the current year is in line with expectations. Demand for the Vito taxi is good and its share of the UK market continues to grow.
Current status of the Cabvision Litigation
Judgement in the litigation in which Cabvision had been involved as a plaintiff was delivered in December 2009 and for the most part the findings were against Cabvision. The successful defendants in the litigation initially reserved their rights to claim part of their costs of the action from companies in the KPM Group, pursuant to section 51 of the Supreme Courts Act. That section permits a party to proceedings to seek recovery of its costs from those who it suspects have funded or will benefit from the litigation. If any section 51 claims are made they will be resisted vigorously on the basis of legal advice received and challenge to the level of the costs will also be made. Cabvision also intends to pursue negligence claims against its former solicitors, these claims are based on their handling of the litigation. Cabvision's retained Queen's Counsel has advised there appear to be "cogent grounds" for such a claim.
Cabvision's lawyers have reached agreement in principle with both lawyers representing the defendants that their clients will not pursue section 51 proceedings either against Peter DaCosta or KPM Group Companies in order to allow Cabvision to pursue its claims against the solicitors that acted for it on the Cabvision Litigation. The effect is that there is a stay on further consideration of pursuit of section 51 claims until the conclusion of the proposed action against the previous lawyers. Written confirmation of this agreement in principle is being despatched and detailed terms will be agreed over the coming few days.
It should also be noted that the Executive Directors gave an indemnity to ECV at the time of the reverse takeover in relation to any losses incurred in respect of ECV becoming a party to the Cabvision Litigation.
Conclusion
Following notification of these matters to its nominated adviser yesterday, the Board of ECV recognises that various of these matters should have been disclosed at an earlier date and the Non Executives have already commissioned a full investigation into these matters, including ECV's corporate governance procedures and any non-compliance with relevant rules and regulations.
Enquiries:
Eco City Vehicles plc
Peter DaCosta, Chief Executive Officer +44 20 7377 2182
Corfin Communications
Neil Thapar, Alexis Gore +44 20 7977 0020
Numis Securities Limited
Stuart Skinner (Nominated Adviser) +44 20 7260 1000
David Poutney (Corporate Broker)