POST OFFICE LIMITED
(the “Company”)
MINUTES of a Meeting of the Board of Directors of the Company held at
80 Old Street, London at 8.15 a.m on 27 September, 2006
Present:
Sir Mike Hodgkinson (in the Chair)
Peter Corbett
lan Anderson
Ric Francis
In attendance:
Sue Whalley
Doug Evans (Group Legal Counsel)
Neil Owen (Company Secretarial)
Jeff Triggs (Slaughter and May)
Apologies:
Alan Cook
Allan Leighton
Jonathan Evans (Company Secretary)
It was noted that a quorum was present.
There were produced to the Meeting:
(a)
(b)
(c)
(d)
the draft accounts of the Company for the financial year ended 26 March, 2006;
a report on the Company's performance to Period 5 accompanied by summary
profit and loss, income, expenditure, cash flow and balance sheet statements
relating to period 5, year to date and forecast full year;
monthly cash flow forecasts of the Company in respect of the 18 months to
March, 2008;
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(e) a letter dated 26 April, 2006 from Stephen Lovegrove (on behalf of the
Secretary of State for Trade and Industry) to the Chairman;
(f) the Subscription Agreement dated 9 August, 2006 between the Secretary of
State for Trade and Industry, The Treasury Solicitor, Royal Mail Holdings plc,
Royal Mail Group ple (“Mails”) and the Company;
(g) a letter dated 18 September, 2006 from Alan Cook (on behalf of the Chairman)
to the Secretary of State for Trade and Industry; and
(h) a letter dated 21 September, 2006 from Stephen Lovegrove to Alan Cook in
reply to the letter referred to in paragraph 2 (g) above.
It was reported that the purpose of the Meeting was to review the Company's financial
position and to consider whether the Company was a going concern for the purpose of
approving its accounts for the year ended 26 March, 2006.
The accounts of the Company for the year ended 26 March, 2006 were produced to the
Board and carefully considered by the Directors. It was noted that the accounts had
been prepared on a going concern basis. The Directors were reminded that if they did
not believe that the Company was in a position to meet its liabilities as they fell due over
the foreseeable future then such accounts should be prepared on a break up basis.
The Board was reminded in particular that as the Company was insolvent each of the
Directors owed a legal duty to act in the interests of the Company's creditors, with a
view to minimising any loss to those creditors. As such the Directors should not
continue to trade and to incur new debts unless they were confident that the Company
would be in a position to meet its liabilities as they fell due over the foreseeable future.
It was clear to the Directors that they could not reach that conclusion unless they were
confident that a long term funding solution would be put in place by Government and
that pending that solution being put in place there would be sufficient funds available to
the Company to enable it to meet its liabilities as they fell due.
It was noted that support from the Government was likely to require state aid approval.
Accordingly in deciding to continue to trade in reliance on Government support it was
necessary for the Directors to form the view not only that such support would be
forthcoming from Government but also that the Government would promptly apply for
and receive the necessary state aid approval for that support. The Directors should
also take into account the time it was likely to take for state aid approval to be obtained
— it was likely that the requirement for such approval could delay actual receipt of funds
for six months or more from the time at which any agreement was reached with
Government.
However, in terms of the Company's immediate cash requirements it was pointed out
that the Company had recently received a cash injection of £145m. from Government
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and that Government was contractually committed to pay a further £231m., together
with rural network payments of £150m. per annum for 2006/7 and 2007/8. Each of these
amounts had already received state aid approval and together theses amounts were
likely to enable the Company to be able to continue to meet its liabilities as they fell due
for the next seventeen or eighteen months.
it was also reported that the Government currently believed that they had existing state
aid approval for a further £198m. of payments to meet the Company's funding
requirements up to the end of the 2006/7 financial year and that Government were
currently considering seeking an extension to be able to use that remaining sum during
the next financial year. However, there was currently no commitment to pay that
amount.
The Finance Director outlined the Company's current financial position and presented to
the Board the papers referred to in paragraphs 2 (b) and (c) above. It was noted that in
terms of cash flow the Company's performance year to date was in line with the budget.
However, it was clear that the Company was insolvent and that in the absence of
support from the Government it would not be a going concern. Indeed if a long term
funding solution did not materialise it would be necessary for the Company to take
urgent and drastic steps to rationalise the network on terms driven more by what the
Company could realistically afford at the time than what subpostmasters and employees
might regard as compensation acceptable to them.
The Finance Director reminded the Board that in the letter of 26 April, 2006 referred to
in paragraph 2 (e) above, the Government and Mails had agreed to put in place short
term funding to meet the Company's immediate requirements. In addition the
Government had stated in that letter its intention to agree with the Company by the end
of December, 2006 a long term funding arrangement such as to enable the Company to
continue to trade as a going concern without putting its creditors at risk of the Company
going into insolvent liquidation in the foreseeable future.
However, it was pointed out that on a number of occasions in the past the Government
had stated its intention to put in place a long term funding solution by deadlines each of
which had come and gone without any such solution having been put in place. It was
also noted that the 26 April letter referred to a process of public consultation which had
not commenced as anticipated. The Directors therefore needed to consider carefully
whether it was appropriate for the Company to continue to rely on such a solution being
provided in accordance with the timetable set out in the 26 April letter.
It was noted that the short term funding that the Government agreed to provide to the
Company in the 26 April letter was now dealt with in the legally binding Subscription
Agreement referred to in paragraph 2 (f) above and that such funding benefited from
existing state aid approval. It was pointed out that the Subscription Agreement also
dealt with funding for the rural network until March, 2008 and that such funding had also
received state aid approval. To date £145m. of the short term funding had already been
received and a further tranche of £156m. was expected to be received shortly, in
addition to the rural network funding.
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It was reported to the Board that the letter referred to in paragraph 2(g) had been sent
to Government with a view to reminding Government of the Board's continuing reliance
on Government's letter of 26 April and inviting Government to inform the Board if its
intentions expressed in that letter had changed. It was further reported that in his reply
of 21 September, Stephen Lovegrove stated that he was not aware of any alteration to
the Government's intentions with regard to the timetable for agreeing a long term
financing arrangement for the Company and gave his support to the signing of the
Company's accounts on a going concern basis.
It was therefore considered reasonable for the Board to continue to place reliance on
the Government's support, although it was agreed that the Finance Director should be
instructed to draw up a contingency plan such that the Company would be in a position
to put in place more drastic cost reduction initiatives at relatively short notice in the
event that an acceptable long term funding arrangement was not put in place by
Government as currently anticipated.
After discussion IT WAS RESOLVED as follows:
(a) that despite the lack of apparent progress to date each of the Directors believed
that the Government would fulfil the intention set out in the letter of 26 April,
2006 to put in place a long term funding solution by the end of December, 2006
such as to enable the Company to continue to trade as a going concern without
putting the Company's creditors at risk of the Company going into insolvent
liquidation in the foreseeable future;
(b) in the meantime, having regard to:
(i) the current trading position of the Company as reported by the Finance
Director;
(ii) the reports and forecasts presented to the Board by the Finance
Director;
(iii) the current short term funding available to the Company from
Government and from Mails (including the amount received to date) and
the existing state aid approvals for such funding; and
(iv) the likely requirement to obtain state aid approval for any future long
term funding, the delay that such process would entail and the risk of
such approval not being obtained,
the Company would have sufficient funds available to it to meet its liabilities as
they fell due over the foreseeable future and in particular until the long term
funding solution had been agreed and received state aid approval;
(c) the Directors should sign the Company's accounts for the financial year ended
26 March, 2006 on a going concern basis;
(d) the Directors should keep the financial position of the Company and its ability to
meet its liabilities under regular review. This should include a discussion on a:
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(e)
(f)
(g)
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monthly basis of the current cashflow position of the Company and progress
towards agreeing a long term funding package from Government;
the Directors should in particular meet shortly after the end of December, 2006
to consider the long term funding requirements of the Group and, if a long term
funding solution had not been agreed with Government by that date, to consider
what action to take with a view to minimising loss to creditors in the light of that,
including consideration of an immediate and drastic rationalisation of the
network;
the Finance Director be instructed to prepare a draft contingency plan for the
implementation of such action in the event that it should become necessary,
such plan to be considered by the Board at its October meeting; and
a letter be written to the Secretary of State explaining the basis on which the
Board had resolved to continue to trade and to sign its accounts on a going
concern basis
The Company Secretary was instructed to file the accounts for the financial year ended
26 March, 2006, once signed, with the Registrar of Companies.
There being no further business the Meeting closed.
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