Liquidation of companies behind Mercy nightclub left taxpayers £400,000 short

Mercy nightclub in Norwich. Picture by SIMON FINLAY.

Mercy nightclub in Norwich. Picture by SIMON FINLAY. - Credit: Archant Norfolk

The owner of a nightclub group which went into liquidation owing Norwich City Council £200,000 was also behind another company which failed 14 months before – owing the council £220,000.

Liquidators were called in to Code Red Promotions, which ran the bars Mercy, Flaunt, Lace and Rocco's restaurant on Prince of Wales Road, on February 15.

But documents filed at Companies House show that owner Ibrahim Peri had previously been involved with a company called Project Zeus, which went into liquidation in December 2016. His mother Dawn Peri was also listed as a director for both companies.

Code Red Promotions bought the assets of Project Zeus from auctioneers C&K Recoveries for £23,580 on February 24, 2017.

However, a report in January from Project Zeus liquidator Nick Cusack, of Parker Andrews, showed that no funds had been received for the purchase.

A third company, Zonebond, also listed Mr Peri as a person with significant control. In similar fashion to Project Zeus, it went into liquidation in November 2016 before its assets were sold back to Mr Peri.

Documents show it owed £168,822 to HM Revenue and Customs at the time.

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In his report, Mr Cusack said the purchase of assets from Zonebond had caused the delay in Code Red Promotions paying for the assets of Project Zeus.

Mr Peri has declined to comment.

Such deals, which see the directors or shareholders of an insolvent company buy its assets under a new business, are known as pre-packs or phoenixing, because the business rises from the ashes like the mythical bird.

In total, the three liquidations could leave more than £500,000 owed to the taxpayer in the form of Norwich City Council and HMRC.

Jeremy Willmont and Lee Causer of Moore Stephens were named joint provisional liquidators of Code Red Promotions on February 15.

The firm said the affairs and business of the company were being managed by the pair but would not comment on the progress of the liquidation.

A spokesman for Norwich City Council said they could not comment, but that, on application of the council to the High Court, the proceedings had started and discussions were ongoing.

Why are companies allowed to 'phoenix'?

Mark Upton, Eastern region chairman of insolvency trade body R3, said pre-pack sales often saved jobs and returned more cash to creditors.

He said: 'Pre-packs are a valuable business and job rescue tool – and they benefit creditors. Without pre-packs, it would be harder to rescue businesses and more jobs would be put at risk. Importantly, pre-packs may only be used when a company is insolvent and a pre-pack would get the best deal for creditors. Without pre-packs, creditors would lose money.'

He added: 'Faced with the decision between selling the business to a connected party or winding the company up, the best decision normally for the creditors is to sell the business on rather than sell the assets on a break-up basis, as the returns would be considerably less.

'Selling the business on is also preferable to allowing the company to fail in terms of the numbers of jobs and customers that are retained.

'In some cases there may be very strong commercial reasons for selling the business back to connected parties. For example, connected parties might be the only people who are interested in buying it or the only people with the necessary skills to run it.'