Huge win for Club La Costa owners as High Court replaces BDO with FRP administrators

High Court application succeeds as BDO is replaced as administrator in Club La Costa’s ongoing administration dispute

In a major win for owners with claims against Club La Costa, who are owed an estimated minimum of £47 million between them, the UK High Court ruled that the appointed administrators, BDO, should be replaced by the creditors’ preferred choice, FRP.

Club La Costa difficulties

Club La Costa (CLC), founded in 1984 by South African businessman Roy Leslie Peires, has faced serious difficulties since December 2020. At that point, Club La Costa UK PLC entered administration, followed by several Spanish companies in the group moving through various stages of administration and liquidation.

The UK courts appointed the well-known accountancy firm BDO as administrators, although this was not the preferred option of the majority creditor group.

Compensation awards for illegal timeshare contracts

For years, CLC issued timeshare contracts in Spain that were later found to be illegal. From 2015 onwards, Spanish courts awarded compensation to CLC members/affected consumers who suffered loss as a result of those contracts.

By the end of 2020, more than €47 million in judgment awards were owed by CLC to mis-sold members.

M1 Legal (M1), the Spanish law firm working with ECC to represent the compensation claimants, contacted BDO in January 2021 to register those claimants as creditors in the UK administration. The claims were ultimately lodged, as they did not initially appear on CLC’s list of creditors, which raised concerns among the creditor group.

Challenge

Unhappy with BDO’s appointment, M1 Legal instructed UK solicitors Clarke Willmott (CW) to seek BDO’s removal. BDO later conceded that M1 Legal’s clients should be recognised as creditors. With CW and M1 representing more than 50% of the registered creditors, the group sought the appointment of new administrators to replace BDO.

A creditors’ meeting was scheduled for 24 March 2021. Following extensive work by M1 and CW, the creditors’ claims were submitted to BDO, with significant information required to verify each claimant. BDO scrutinised the documentation closely before allowing the claims to be counted for voting at the meeting.

At the creditors’ meeting, however, the appointed Spanish liquidator, Juan Carlos Robles Diaz, produced a last-minute block vote of £30 million from creditors in Spain.

The unexpected vote meant BDO could not be removed at that stage. The move concerned the creditors’ lawyers. *“It turned out that he had voted on behalf of creditors without them even knowing, and certainly without their permission,” explains Adriana Stoyanova, a lawyer working with M1. “And the manner in which he did this immediately raised our concern. Whereas ourselves and CW had correctly prepared and categorised all of our documentation which BDO insisted on, all Mr Robles Diaz presented was one piece of paper, which we obtained after the meeting from BDO. It appeared to have been completed in different handwriting, and we knew that it needed closer scrutiny. There were no power of attorney documents or court judgements provided, nothing to support the validity of these claimants as creditors yet BDO happily accepted them, and it turned out these creditors voted at the meeting for BDO to remain as the administrators of Club La Costa (UK) PLC“

Collaboration between claims firms

M1 Legal then discovered that two other law firms (JLCA & CLA), representing timeshare owner claimants listed among the Spanish creditors whose vote was used to keep BDO in place, were unaware that Robles Diaz had voted on their behalf (and, in fact, against their wishes).

M1 Legal quickly formed an alliance with those firms to bring a further challenge to replace BDO.

A further application was made to the UK High Court. This time, with M1/CW alongside JLCA & CLA and their combined votes representing the majority of creditors, the High Court ruled in favour of the claimants.

FRP has therefore been appointed as administrators of CLC as of 26 July, with BDO due to be removed from office within eight weeks.

What happens now?

*“This win was a team effort between us and our allies, CLA and JLCA,” says Andrew Cooper. “There is still a lot of work left to do, but we are delighted that FRP is handling the process, and feel confident that the creditors will be well represented to stand the best chance to recover the tens of millions that are owed by locating the millions which Club La Costa have filtered through other group companies and trustees. We are also investigating this matter through the Spanish courts with a criminal action now already underway.

*“There is a large web of companies around CLC whose relationship to one another in respect to the debts owed to the creditors needs to be established. For a company owing so much money and trying to claim it can’t meet those obligations, it seems somewhat a case of robbing Peter to pay Paul as some of CLC’s other companies look to be doing very well in a lot of respects.

*“Creditors will be curious as to how the club collecting millions in maintenance fees every year is still operating and how CLC affiliated companies still own vast amounts of property across its 31 resorts worldwide.

*“There is also the matter of Glinton Limited. The June 2020 Club La Costa PLC Directors’ Report states that a company based in the Isle of Man, Glinton Limited, would be guaranteeing the debts of CLC Plc for the 12 month period from 30 June 2020.

*“It needs to be established whether Glinton is in a position to be able to help reimburse the CLC creditors. One thing is certain, following the recent £48 million payout by Barclays Partner Finance after their association with Azure, the finance houses involved with Club La Costa will be paying careful attention to their own potential liabilities in the company’s administration process.”

Court order viewable here.

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