Interserve to go into administration after rescue deal rejected | Business

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.

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.

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.

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.

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.

March 15, 2019

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.

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.

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.

That plan is now set to go ahead anyway.

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.

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.”

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 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.

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.

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 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 clients to shun the company.

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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.

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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