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Interserve to go into administration after rescue deal rejected Interserve to go into administration after rescue deal rejected
(about 3 hours later)
The government contractor Interserve is to go into administration after its largest shareholder, the US hedge fund Coltrane, led a rebellion against financial rescue plans drawn up by the company’s lenders.The government contractor Interserve is to go into administration after its largest shareholder, the US hedge fund Coltrane, led a rebellion against financial rescue plans drawn up by the company’s lenders.
The result of the vote, held at an emergency meeting, fires the starting gun on a “pre-pack” administration likely to be completed by the end of Friday. Interserve has thousands of government contracts such as hospital cleaning, school meals and maintenance of military bases in the Falklands. It also operates the probation service. Around 16,000 small shareholders will lose all of their investment, with hedge funds and banks taking control via a “pre-pack” administration which means Interserve, which employs 45,000 people in the UK, can continue trading.
While shareholders will be wiped out, with the company sold to the lenders, the nature of a pre-pack administration means Interserve, which employs 45,000 people in the UK, can continue trading. Interserve: a calamity created in the boardroom | Nils Pratley
The company said this should ensure no disruption to the key public services that Interserve manages for the government and prevent job losses in the short term. The pension scheme will also be protected. Interserve has thousands of government contracts such as hospital cleaning, school meals and maintenance of military bases in the Falklands. It also runs parts of the probation service, which was part-privatised under a heavily criticised process overseen by former justice minister Chris Grayling.
The company and the Cabinet Office, which oversees state suppliers, said they did not expect disruption to the public services that Interserve manages, while job losses are not expected in the short term.
But the failure of another outsourcing giant, little more than a year after Carillion’s collapse, sparked fresh calls for public services to be taken back in-house from trade unions and Labour’s business select committee chair Rachel Reeves.But the failure of another outsourcing giant, little more than a year after Carillion’s collapse, sparked fresh calls for public services to be taken back in-house from trade unions and Labour’s business select committee chair Rachel Reeves.
First Carillion and now Interserve. The gov't model of outsourcing services to cut costs has failed. It is time to bring these contracts back in-house. https://t.co/yjfvTqBmpoFirst Carillion and now Interserve. The gov't model of outsourcing services to cut costs has failed. It is time to bring these contracts back in-house. https://t.co/yjfvTqBmpo
Once the administration is complete, Interserve will go ahead with a debt reduction plan similar to the one that Coltrane rejected, leading to the administration. The probation service trade union, Napo, called for the justice ministry to halt all tenders for new contracts with private companies.
Coltrane, which owned 27% of the company, opposed a rescue deal that would have seen banks and hedge funds that hold Interserve’s £631m debt agree to cancel £485m of it. Napo’s general secretary, Ian Lawrence, said: “How much more evidence does this government need to recognise that their failed probation experiment is no longer sustainable?”
In return, lenders would have taken ownership of nearly all of the company’s stock, leaving shareholders with only 5% between them, and pumped £110m of cash into the company. The GMB union said Interserve’s financial travails were indicative of the failure of the outsourcing model, where the government pays private companies to run public services.
That plan is now set to go ahead anyway. The GMB’s national officer Kevin Brandstatter said: “Ministers have learned absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public sector contracts.”
The chairman, Glyn Barker, urged shareholders at the meeting to support the plan, warning that debt was crippling the company, which could not continue as a going concern if the refinancing did not go through. Interserve ran into financial difficulty after delays and cancellations to key construction projects, as well as an unsuccessful foray into waste-to-energy projects that left it with huge debts, requiring refinancing to avoid failure.
Asked how Coltrane had voted at the meeting, before the results were known, a representative of the US hedge fund said: “I voted for Donald Trump.” Accountancy group EY will manage the administration, after which Interserve will go ahead with a debt reduction plan similar to the one that Coltrane rejected at an extraordinary general meeting of shareholders in London on Friday, triggering the administration process.
Coltrane was joined by fellow US hedge fund Farringdon and a handful of small shareholders in voting down the plan. While the two hedge funds only held 33% of the company between them, they commanded more than 50% of the votes cast due to low turnout. Coltrane, which owned 27% of the company, opposed a rescue deal that would have seen the banks and hedge funds that hold Interserve’s £815m debt agree to cancel £485m of it.
Coltrane had put forward its own rival restructuring plan, which Barker told the meeting directors had not been able to support because it would not be possible to implement it. In return, lenders would have pumped £110m of cash into the company and taken ownership of nearly all of its stock, leaving shareholders with only 5% between them.
That plan is now set to go ahead anyway, but with shareholders being wiped out.
The chairman, Glyn Barker, urged investors at the meeting to support the original plan – which required the backing of more than 50% of voting shareholders – because debt was crippling the company and it could not continue as a going concern if the refinancing did not go through.
But Coltrane was joined by fellow US hedge fund Farringdon and a handful of small shareholders in voting against it. While the two hedge funds only held 33% of the company between them, they commanded more than 50% of the votes cast due to low turnout.
Asked how Coltrane had voted at the meeting, before the results were known, a representative of the New York-based hedge fund said: “I voted for Donald Trump.”
Coltrane had earlier put forward a rival restructuring plan, which Barker told the meeting directors had not been able to support because it would not be possible to implement it.
Chris Baldock, 66, a retired small shareholder, told the Guardian he was “disgruntled” at how the company had been run.Chris Baldock, 66, a retired small shareholder, told the Guardian he was “disgruntled” at how the company had been run.
“I was buying shares at £3 and they’ve gone down to 15p. I’ve lost about £12,000,” he said, adding that the company’s management had been overconfident.“I was buying shares at £3 and they’ve gone down to 15p. I’ve lost about £12,000,” he said, adding that the company’s management had been overconfident.
Interserve ran into financial difficulty after delays and cancellations to key construction projects, as well as an unsuccessful foray into waste-to-energy projects. Barker said directors had realised the company’s balance sheet was weak in 2016 and wanted to raise money through an issue of new shares but that this plan was “knocked sideways when the the volcano of energy-from-waste exploded”.
Barker said directors had realised the company’s balance sheet was weak in 2016 and had wanted to raise money through an issue of new shares but that this plan was “knocked sideways when the the volcano of energy-from-waste exploded”. He added that the failure of Carillion had put paid to any chance of people investing in an outsourcing company’s rights issue, while persistent speculation that Interserve was in similar difficulties had caused potential clients to shun the company.
He added that the failure of Carillion had put paid to any chance of people investing in an outsourcing company’s rights issue, while persistent speculation that Interserve was in similar difficulties had caused clients to shun the company. Chief executive Debbie White and finance director Mark Whiteling, who joined two years ago with the company already in difficulty, earned a combined £772,000 in 2017, despite joining in September and October of that year respectively, thanks to bonuses worth 125% of salary.
The GMB union said Interserve’s financial travails were indicative of the failure of the outsourcing model, where the government pays private companies to run public services. Recent performance on the criteria for their bonuses in 2018 indicate that the pair could still take home extra payments worth more than 50% of salary for the firm’s last year as a public company, indicating a package worth more than £1m for White.
The GMB national officer Kevin Brandstatter said: “Ministers have learned absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public sector contracts.”
He said: “Shambolic mismanagement is putting jobs on the line and services in jeopardy. Our public services can’t go on like this.
“We’ve launched our Go Public campaign to push for an end to outsourcing and privatisation in UK public services. It’s time to turn the tide on the disastrous experiment of gifting our public services to fly-by-night profiteering companies.”
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