High Court application succeeds as BDO is replaced as administrator in Club La Costa’s ongoing administration dispute
In a major outcome for owners bringing claims against Club La Costa (CLC) — who say they 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’s financial difficulties
Club La Costa (CLC), founded in 1984 by South African businessman Roy Leslie Peires, has faced significant difficulty since December 2020. Club La Costa UK PLC entered administration at that point, followed by several Spanish group companies moving through various stages of administration and liquidation.
The UK courts appointed the accountancy firm BDO as administrators, a decision that was not supported by 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, and from 2015 onwards Spanish courts began awarding compensation to CLC members and affected consumers who had suffered loss as a result.
By the end of 2020, CLC reportedly owed more than €47 million in judgment awards to mis-sold members.
M1 Legal (M1), the Spanish law firm working with ECC to represent compensation claimants, contacted BDO in January 2021 to register those claimants as creditors in the UK administration. The claims were eventually lodged after it became clear they did not initially appear on CLC’s list of creditors, which caused concern among the creditor group.
The challenge to replace BDO
Unhappy with BDO’s appointment, M1 Legal instructed UK solicitors Clarke Willmott (CW) to seek BDO’s removal. BDO later accepted that M1 Legal’s clients should be recognised as creditors. With CW and M1 representing more than 50% of registered creditors, the group sought to appoint new administrators in place of BDO.
A creditors’ meeting was scheduled for 24 March 2021. Following extensive efforts by M1 and CW, creditors’ claims were submitted to BDO alongside significant supporting information, as BDO required detailed verification to satisfy itself that each claimant was properly evidenced. BDO scrutinised the documentation before ultimately allowing the claims to be counted at the meeting.
At the meeting, however, the appointed Spanish liquidator, Juan Carlos Robles Diaz, presented a surprise block vote of £30 million from Spanish creditors.
The last-minute vote meant BDO could not be removed at that stage. The move was strongly questioned by 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 later discovered that two other law firms (JLCA and CLA), representing timeshare owner claimants included on the Spanish creditors list — whose votes were 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 these firms to bring a further challenge to replace BDO.
A new application was made to the UK High Court. This time, with M1/CW and JLCA & CLA representing the majority of creditor votes, the High Court ruled in favour of the claimants.
FRP has therefore been appointed as administrators of CLC as of 26 July, with BDO 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 30th 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.”
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