Why has Interserve gone into administration?
Interserve, one of the UK’s largest construction and services companies is likely going to enter administration after an acrimonious shareholders meeting today.
Interserve provides a wide variety of services to the public and private sector including healthcare, catering, cleaning, and security services. They provide the cleaning for London Underground and maintain British Army bases in the UK and abroad. Amongst its largest infrastructure projects are the M5 Junction 6 improvement near Worcester, refurbishing Rotherham Interchange bus station and upgrading sewers and water pipes for Northumbrian Water. It is also the largest provider of probation services in England and Wales for the Ministry of Justice overseeing approx. 40,000 medium to low risk offenders.
With 45,000 employees in the UK and 75,000 worldwide, Interserve employ more staff than Carillion did when they became the UK’s largest ever trading liquidation in January 2018 with debts of £1.5 billion. Carillion was allowed to continue trading by the Official Receiver and had its various public and private sector contracts transferred out to other companies. Over 10,000 jobs were saved using this method with only 1,875 redundancies, approx. 10% of the workforce.
We previously wrote on the insolvency risk within the UK construction industry in February which looked at reasons for why organisations get into financial trouble.
The company has been seeking to refinance nearly £630 million worth of debt since announcing a deleveraging plan in December last year on top of a £300 million refinancing package secured in March 2018 although shares have fallen by 80% in the past 12 months. Debts were also increased through deals in the energy-from-waste sector proving unfavourable.
Today’s meeting saw existing shareholders clash with lenders about Interserve’s future ownership model. Shareholders sought to have their plan confirmed that would see them retain up to 30% of their existing equity in the company but this was defeated.
Accountants EY are expected to be appointed as Administrators who would oversee a “pre pack” administration. This would allow the operational side of Interserve to continue trading as a “new” company owned 100% by current lenders. They would then be able to sell off the different parts of Interserve’s business in due course.
What is prepack administration?
Critically for employees, there would not be expected to be any job losses or interruption to the company’s current underlying contracts, although there will be increased debate on the appropriateness of large private sector contractors carrying out essential public service works, in areas where they have little or no previous experience.
Are you an Interserve employee or subcontractor? Are you worried about the impending administration and what could happen next?
Contact us to discuss your options and how we can help and advise you on your next move.