Banks seize control of car wash firm in landmark case

A landmark court ruling yesterday that gave senior lenders full control over a struggling business could have major implications for the leveraged buy-out industry and junior mezzanine lenders to distressed companies.

A High Court judge yesterday awarded all the equity of IMO Car Wash – which has more than 900 sites in 14 countries – to its banks, led by HBOS, who are owed about £300m. The ruling is blow for a group of hedge funds that had participated in the £450m leveraged buy-out of IMO, which declined to comment.

The dispute centred on how to value the business, which could have implications for the large volume of private equity deals completed between 2003 and 2006 that used a similar financial structure.

IMO and its senior creditors argued that the business should be valued by the best price that could be obtained in the current market, an approach typically adopted in a pre-pack administration sale. However, IMO's junior creditors disagreed with this approach and argued that the process should establish the inherent value of the business.

Bruce Bell, a restructuring partner at Linklaters, which was not involved in the case, said: "Valuation issues are at the heart of any debt restructuring. Obtaining clarification as to how the court is likely to view such valuations is therefore a welcome step forward."

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