Collapse of Scotsman Hotel Group leaves banks £26m out of pocket

THE collapse of the Scotsman Hotel Group, recently bought out of administration by its former billionaire Arab owner, is thought to have left bankers owed more than £26 million.

Administrators had been appointed in October to the holding company which was behind the landmark five star hotel on Edinburgh’s North Bridge along with other properties in Leeds and Paris.

The Bank of Scotland had outstanding loans of £51.2m to the business and had been in discussion with its parent company JJW, ultimately headed by Arab entrepreneur Sheikh Mohamed Bin Issa Al Jaber, since 2010 over repayment.

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A report recently filed by administrators from KPMG said that when they were appointed the group was “significantly loss-making” and experiencing cash flow difficulties. In 2009 the company had recorded an after-tax loss of £7.1m on a turnover of £14.6m.

After administrators were appointed the hotels continued to trade whilst options for the business were assessed. During that process an offer was received by JJW which included taking over a £20.7m intercompany debt and in December agreement was reached which saw some £24m paid.

The administrators report said that the offer represented the “optimum outcome for creditors” due to factors including the cash nature of the deal and the avoidance of a protracted sale process.

According to the statement of estimated outcome from the administration, the report said a sum of £24.25m is expected to be paid to the bank once funds had been received from but identified a shortfall on the bank’s debts of £26.9m.

Although the report said that a full statement of affairs for the company had not yet been provided it added: “Based on the expected level of realisations and the amounts owed to the secured creditors there is no prospect of funds being available for unsecured creditors.”

Since JJW bought the company, it has been reported that it is planning a £65m investment in the group which also owns 42 The Calls Hotel in Leeds and Hotel de la Tremoille in Paris.

A spokesman for the group had said at the time of the deal that Sheikh Mohamed, ranked as the 93rd richest man in the world by Forbes in 2010, was delighted that the group was now “fully back in his family of companies”.

“There are major, exciting investment plans for hotels in the group over the course of next year,” added the spokesman. “The details of this will be announced in due course.

The Scotsman Hotel was created in the A-listed former home of The Scotsman, Edinburgh Evening News and Scotland on Sunday after being bought in February 1998 for about £4.3m as part of a plan to create a European-wide chain.

After refitting and refurbishment costing £19.5m, it began its new life as a five-star hotel in April 2001. However, trade slumped badly as Edinburgh’s tourism industry was hit in the aftermath of the terror attacks of September 2001.