FIFE manufacturing business Havelock Europa had almost £30 million of debts when it was bought out of administration, an update from the firm’s administrators has revealed.
The firm, a specialist in shop and office fit-outs, was reborn as Havelock International after being bought out of administration at the beginning of July. While that saved the jobs of the 300-plus people employed by the business, it also allowed its liabilities to be left behind in the entity called Havelock Europa.
A document prepared by Havelock Europa’s administrators – Graham Frost and Toby Scott at PwC – shows that while the business owed a total of £27.2m to secured and unsecured creditors, just £1.4m is expected to be recovered to pay them.
Read more: Over 300 jobs saved as Havelock Europa secures rescue deal
That means that secured creditor the Scottish Government, which gave the company a £3m emergency loan via its economic development agency Scottish Enterprise at the beginning of this year, will not receive any of the £2.8m still owed to it.
Similarly, fellow secured lender Bank of Scotland, which lent Havelock Europa £5m in February, is only likely to recover around a third of the £4.1m it is owed.
A total of £7.6m is owed to unsecured trade creditors, with just under £1m of that due to other Fife businesses. These debts will all be written off along with a further £837,581 owed to HMRC for unpaid VAT, employer national insurance contributions and income tax deducted from staff salaries.
Meanwhile, Havelock Europa chairman Ian Godden, who lent £300,000 to the business in 2016, will not be repaid that sum.
With an accounting deficit of £11.5m, the company’s defined benefit pension scheme is by far the company’s largest unsecured creditor.
Its 320 members, around 60 of whom are yet to retire, will not lose out on their pensions, though, with the scheme expected to transfer to the Pension Protection Fund (PPF) at the end of an assessment period.
Those who have already retired will see no difference to their pension income, while those yet to retire will see their entitlement reduced by 10 per cent in line with PPF rules.
Read more: Havelock to offload final salary pension as part of rescue deal
Despite the value of Havelock Europa’s assets falling well below the level needed to meet its liabilities, PwC restructuring partner Mark Addley said the pre-packed deal, which saw private equity house Rcapital buy the firm out of administration, was a “fantastic result” in the circumstances.
“It’s not a great financial return for the creditors but there’s a positive story in that the business has been rescued and the jobs have been rescued and everyone [employees] has been paid in full,” he said. “There’s now an opportunity for the business and those jobs in Fife.”
Havelock Europa, which was founded in 1869, filed for administration after struggling financially in the wake of losing a major contract from a banking client - believed to be Lloyds - in 2015.
That one client had contributed £21.1m of the firm’s 2015 turnover of £70.3m, with the figure dropping to £1.4m of total turnover of £60.8m in the following year.
Its final set of financial results, which were released at the end of May after a four-week delay, showed that turnover fell by 12.5% to £53.2m in the year to December 2017 while a marginal pre-tax profit of £200,000 in 2016 turned into a loss of £5.3m.
Read more: Havelock installs new CEO in bid to reverse losses
After issuing a profit warning last September the business replaced then chief executive David Ritchie with Shaun Ormrod, the former chief executive of Farnborough International Airshow organiser Farnborough International the same month.
While Mr Ormrod had sought to turn the business around, it is understood that ultimately its large pension deficit and the sums the firm would have had to pay to try to reduce it had proved too big a problem to resolve.
Mr Ormrod could not be reached for comment on the PwC update and Havelock International did not respond.
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