Outsourcing giant Interserve has announced on Friday afternoon that they are to file for administration, as they failed to secure investor backing for the rescue plan.
Interserve said, “The board of directors of the company is convening an urgent board meeting to consider its options.
“In the absence of any viable alternative, it expects to implement an alternative deleveraging transaction, which is likely to involve the company making an application for administration and, if the order is granted, the immediate sale of the company’s business and assets [.e. the entire group] to a newly-incorporated company, to be owned by the existing lenders.”
Share in the company will be immediately suspended from the London Stock Exchange.
Interserve employs 65,000 people and 45,000 workers in the UK, EY has been lined up to be the administrators in a pre-pack deal.
The pre-pack administration will enable the company to avoid a Carillion style collapse.
National officer for the GMB union, Kevin Brandstatter said, “Ministers have learnt absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public-sector contracts.
“Shambolic mismanagement is putting jobs on the line and services in jeopardy. Our public services can’t go on like this.”
Commenting on news that Interserve has lost its rescue vote and faces administration, Simon Underwood, business recovery partner at accountancy firm, Menzies LLP said, “One year on from the collapse of Carillion, Interserve’s administration is like history repeating itself. However, it comes as little surprise, with the announcement of the company’s search for a rescue deal causing shares to plummet at the end of last year.
“Much like the Carillion collapse, Interserve’s demise will have significant implications for its supply chain, including its sub-contractors.
“At the time, the size and complexity of Carillion’s business model meant that its collapse was uncharted territory, however, the approach applied has since become a blueprint for business recovery specialists. Like Carillion, Interserve has limited capital and slim operating margins, therefore opting for compulsory insolvency may become the most suitable approach.
“The fact that a large proportion of Interserve’s public sector contracts are in non-critical areas, such as building maintenance, means its failure is unlikely to cause chaos on the same scale as Carillion. On the other hand, with a number of important infrastructure projects, such as the M5 Junction 6 improvement works, resting on Interserve’s continued trading, the Government may well need to intervene.
“With suppliers vying to get their contracts resolved with administrators, it is essential that they seek third-party advice at the earliest possible opportunity and ensure cash-flow protection is at the top of their agenda. As well as attempting to renegotiate payment terms with their own suppliers, entering into ‘Time to Pay’ arrangements with HMRC may help them to ease the cash-flow burden and minimise operational disruption.
“Ultimately, Interserve’s expected failure is another powerful reminder of the need for Government to learn from its mistakes by adopting a stringent, ongoing approach to monitoring the performance of strategic suppliers. Its proposals requiring procurement partners to put in place contingency plans in case of business failure are a positive step forward, however, a more joined-up approach is essential to prevent such collapses reoccurring in the future, and to protect taxpayers’ interests.”