Ionica bonuses anger creditors

IONICA, the wireless telephone operator that went into administration this week, is facing a row with creditors following the disclosure that large bonus payments were made to senior directors days before the business collapsed.

Confirmation of the payments came as it emerged that bondholders owed pounds 250m by Ionica are unlikely to get much money back, while shareholders are entitled to all the cash left in the company.

Documents filed with the Securities and Exchange Commission in the US show that five directors were entitled to receive bonuses of between 30 and 50 per cent of salary in connection with the restructuring of the company.

Michael Biden, chief executive, Gavin Morris, chief financial officer and Patrick Mitchell, technology director, who are all on the main board, have agreed to waive their entitlements.

However, a spokeswoman for Ionica confirmed that bonuses equivalent to 30 per cent of salary were made to the company's business development director, Rob Moorland, and its human resources director, Nigel Brocklehurst.

The payments were "retention" bonuses agreed with the directors in July in return for them staying on to help secure a strategic investor.

Although the three board directors have agreed to waive their bonuses, they will still be entitled to severance pay because of their service contracts with Ionica Group rather than Ionica plc, the operating arm of the business which has gone into administration. Mr Biden is entitled to severance pay of around pounds 200,000 and Mr Mitchell pay of pounds 154,000.

Bondholders normally rank above shareholders in the line of creditors, but because of the way the business was structured they are likely to fare worse in any liquidation. The bondholders lent to the operating company, which is in administration, whereas shareholders' cash is held in the group company created at the flotation 15 months ago.

This explains why Ionica was able to announce on Thursday that it intends to distribute net assets to shareholders once the operating company closes. There is about pounds 35m of cash in the group company, worth 20p a share, while net assets were worth pounds 170m at 31 March.

More details emerged of how the rescue of Ionica fell apart within days of the company chairman, Tony Coleman, assuring shareholders at the annual meeting on 23 October that he was confident of a deal.

Talks to sell Ionica to the wireless telephone operator, Atlantic Telecom, for around 14p a share collapsed last weekend after the company was unable to put a pounds 300m financing package in place because of the difficulty of raising debt. Nortel, Ionica's main equipment supplier, had been ready to help in the rescue by providing supplier finance, but on condition it was treated as senior debt.

Ionica's advisers, SBC Warburg Dillon Read, reopened talks at the start of this week with another bidder, a venture capital group, but these were terminated because the price offered was unacceptable.

Atlantic Telecom, based in Scotland, may be interested in picking up parts of Ionica.

The administrators, PriceWaterhouseCoopers and Ernst & Young, are expected to announce the first job losses at Ionica's Cambridge headquarters next week. There are fears that a third of the 1,000-strong workforce will go.