16th Nov 2005 07:02
Cape PLC16 November 2005 Cape PLC ("Cape" or the "Company") On 16 June 2005, Cape announced a proposed scheme of arrangement (the "Scheme")to provide for the long term financing of a great majority of all future UKasbestos-related claims likely to be successfully made against the Company andthose of its subsidiaries to be included in the Scheme (each a "Scheme Company"and together the "Group"). The proposals included a Placing to establish aninitial £40 million fund, into which the Company will have ongoing top-upobligations, to be used in the settlement of claims covered by the Scheme("Scheme claims"). The fund is planned to exist for as long as there are Schemeclaims, currently estimated to be not less than 46 years. One of the policiesthe Board intended to apply to the proposed fund was not to recognise claimsfrom persons employed or exposed to asbestos during certain periods by certainliquidated former subsidiaries of the Company. This policy had been adopted in2001, in the light of changing commercial and legal circumstances, and when theCompany sought legal advice in formulating the proposed Scheme no change to thatpolicy was envisaged. As a result of the process undertaken in July of preparing the necessarydocuments to be sent to Scheme creditors convening the meetings of Schemecreditors, the Company was advised by the Company's legal advisers preparing theScheme that the original Scheme proposals did not contain sufficient explanationas to why the persons described above could have claims that would be bound bythe proposed Scheme and that the value of all such claims was required to beestimated by the independent actuaries. Cape therefore gave furtherconsideration to the manner in which claims that may arise from persons employedor exposed to asbestos during certain periods by certain liquidated formersubsidiaries of the Company should be handled going forward. After carefulconsideration, and as the Company announced on 14 October 2005, the board ofCape has decided that such claims should be fully recognised in the Scheme andin that light considered the potential impact on the proposed Scheme fund. The Company's independent actuaries have now completed their review of thefinancial effect of recognising these claims within the Scheme. The independentactuaries' best estimate of the aggregate projected discounted value, net ofinsurance recoveries, of all the Group's unpaid UK asbestos-related claims(including claims against the liquidated former subsidiaries of the Company) asat 31 December 2004 is £119.4 million of which approximately £10.7 million comefrom UK shipyards covered by separate arrangements which are outside the Scheme.This represents the best estimate within the range of the highest and lowestestimates contained in the actuaries' review of £240.3 million and £70.2 millionrespectively. The discount rate applied is five per cent. per annum. Thiscompares with the independent actuaries' previous best estimate and the range ofthe highest and lowest estimates (excluding claims against the liquidated formersubsidiaries) of £80.9 million, £160.2 million and £49.5 million, respectively.Neither review takes account of claims which are the subject of third partyindemnities in favour of the Company and are currently being handled and settledin full by the relevant third party. The scope of the actuaries' latest review includes claims that may be madeagainst all of the Company's liquidated former subsidiaries. It is likely thatnot all of these claims will be capable of being made against a Scheme Companyand any claim which cannot be made against a Scheme Company will not be a Schemeclaim. However, as it is not possible to determine with accuracy the proportionof these claims which will be Scheme claims, all such claims have been includedin the actuaries' estimate. The actuaries' review assumes that in the future theGroup will not have to make payment in respect of claims where insurance iscurrently responding to meet those claims. Unpaid claims do not represent an exact calculation, but rather are estimates ofthe expected future costs of the ultimate settlement of claims. As such,estimates of asbestos-related unpaid claims are inherently uncertain. Given the wide range of the estimates and the significant degree of uncertaintysurrounding the estimates, the Company is unable to conclude that the aggregateprojected discounted value, net of insurance recoveries, of all the Group'sunpaid UK asbestos-related claims (including future claims) will amount to£119.4 million, nor is there any certainty that the total cost of such claimswill even fall within the range of estimates. In the light of the foregoing, theCompany continues to believe that such levels of uncertainty remain and that theestimates are insufficiently reliable such that provisions in respect of futureclaims cannot and, indeed, should not, be made in the Company's and the Group'saudited accounts other than when claims have been notified. Cape's Scheme proposals have been updated in light of the actuaries' revisedestimate. The Company originally expected the initial £40 million fund to meetamounts payable by the Group in respect of Scheme claims (other than thosecovered by insurance) over the following 12 years. The Company now expects theinitial £40 million fund to meet such claims over at least the following 8years. Cape originally proposed that the level of Scheme funding would be independentlyreviewed every three years to determine the funding required to cover expectedclaims over the next 13 years and whilst the level of Scheme funding willcontinue to be independently reviewed every 3 years, the revised proposal isthat the independent review will determine the funding required to coverexpected claims over the next 9 years. Cape continues to propose to top up the Scheme funds annually over the following3 years, to the extent that it is able to do so. However the intention is nowthat following such payments there will be sufficient monies to fund the paymentof claims over the following 6 years and not the following 10 years. If thelevel of funds in the Scheme were to fall below an amount equal to 60 per cent.of the amount of expected claims over the following 6 years (as compared with 10years as originally proposed) only a percentage of each claim would be paidunless and until the Scheme funding was restored to that level. The Company is aware that since 2001 a statutory compensation scheme may havebeen compensating certain claimants who were employees of liquidated formersubsidiaries of the Company in circumstances where such claimants may have hadpotential claims against the Group. The Company may be required to reimburse thestatutory scheme in respect of certain of the payments it has made. Any suchpayments made by the Company would not be Scheme claims. The Company has hadpreliminary discussions with the statutory scheme concerning these mattersalthough as yet the quantum of any such payment has not been estimated. In its statement of interim results on 26 September 2005, Cape announced thatthe original Scheme timetable, whereby the Scheme would become effective by 31December 2005, could no longer be met. Cape further announced that it would benecessary to seek approval from shareholders for an extension of the date bywhich the provisions that relate to the special Scheme shares must becomeeffective. The Company intends to seek such approval from its shareholders priorto the necessary meetings of Scheme creditors being held. The Company alsoannounced that it would need to renew loan facilities from the Company's bank tocomplete the initial Scheme funding and discussions on the terms and timing ofthe extension are continuing. Discussions with interested parties including claimants, asbestos victim supportgroups and their representatives are continuing. A leading asbestos claimantfirm of solicitors, Thompsons, are acting as co-ordinator for a number of otherleading asbestos claimant law firms and asbestos victim support groups. Cape iscurrently agreeing with Thompsons the scope of a due diligence exercise to beundertaken on the Scheme and to be funded by Cape. A firm of independentaccountants are to be appointed to undertake the financial due diligence. Capeexpects the due diligence will be completed within 5 weeks of its commencement. Cape intends to make an application to the Court later this week regarding thecontacting of persons who might be affected by the revised Scheme proposals. TheCompany currently intends to seek the Court's consent to convene the meetings ofScheme creditors in early 2006 with the meetings currently expected to be heldat the end of February or during March 2006. Provided that the requisitemajorities have been obtained at the meetings of the Scheme Creditors,application for the sanction of the Scheme by the Court will be made as soon aspossible thereafter. The directors are confident that, assuming there is no material deterioration inthe Group's trading performance, no significant increase in either the number ofasbestos related claims or the quantum of damages or costs the Group has tosettle and no significant shortfall in the recoveries that the directors expectthe Group to make from its insurers and on the assumption that the Scheme fundachieves investment returns in line with current expectations, the Group will beable to ensure the Scheme is sufficiently funded to satisfy all Scheme claims infull. The board believes that the revised Scheme proposals are in the interests of allstakeholders and, in particular, future claimants. ENDS For further information, please contact: Cape PLCMartin May, Chairman +44 (0) 1924 876 276 Bell Pottinger Corporate & FinancialNick Lambert +44 (0) 7811 358 764 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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