Stanley Gibbons should be a ‘red flag’ business but Phoenix Asset Management’s Gary Channon is confident in his decision to buy the stamp dealer out of administration on the strength of its ‘backable future’.

Channon used Phoenix SG – which owns Stanley Gibbons and its subsidiary coin specialist AH Baldwins & Sons – to execute a management buyout of the stamp auctioneer in December after it was plagued by debt following its purchase of the world’s most expensive stamp.

Phoenix SG is the fourth-largest holding in Channon’s £244m special situations investment company Castelnau (CGL ), which in turn is the third-largest holding in his £185m UK equity investment trust Aurora (ARR ).

The 167-year-old stamp specialist announced its insolvency on 22 December after its 2021 purchase of the British Guiana 1c Magenta for £6.3m. The auctioneer had taken a £6.5m interest-free loan from Phoenix SG to purchase the stamp, which was issued in limited numbers in British Guiana in 1856; only one is known to still exist.

Despite attempts to recoup as much as £8m by selling 80,000 shares in the stamp online for £100 each, Stanley Gibbons ran into difficulties refinancing the Phoenix debt, which totalled £20m as the business continued to make a loss of more than £2m a year.

The loan was due for repayment in March 2023 but Phoenix was forced to grant a waiver after the stamp company failed to meet cashflow and earnings markers tied to the debt. Later in the year, Phoenix SG confirmed a management buyout under a newly formed company called Strand Collectibles Group.

In an investor webinar, Channon said ‘a lot went on behind the scenes’ for the management buyout to happen, and the wheels of the buyout were put in motion when it became ‘inevitable’ that the business was going to fail, which he said ‘is not an easy thing to do when you own it’.

‘For a business you own to go into administration, and for it to come out of the other side and you still own it less the liabilities, that is generally a red flag and there is usually something not good about that,’ he said.

‘There have been plenty of bad things happen in the past with pre-packaged [buyouts] to make them a reputational nightmare.’

However, he said there was ‘no better alternative’ than Phoenix swapping its debt for equity.

As many as 70 parties were approached about a takeover and ‘if someone had come along and offered a price that would have paid back our debt, we would have sold it’.

Instead, Phoenix decided to spend ‘a lot of money’ on running its due diligence process and finding out why the ‘legacy liability undermined the future value proposition’.

‘It was not just the obvious liabilities like pensions and leases,’ he said. ‘There was also the Guernsey administration that predated our involvement.’

The Guernsey subsidiary of the group was pushed into administration in 2017 after its postage stamp investment scheme collapsed with more than £70m of liabilities. Hundreds of investors were left in limbo after buying rare stamps with the promise of a ‘buyback guarantee’ from the Guernsey arm, giving rise to long-running legal battles.

Channon said Phoenix ‘spent a lot of money’ bringing in legal teams to fight the cases against the Guernsey arm, which was ‘an uncomfortable thing to go through’.

With due diligence and legal issues cleared up, he said Stanley Gibbons has a ‘backable future on the other side of administration’.

‘We do believe in the proposition and we believe there is a great opportunity for us in the collectibles space,’ he said.