INTERSERVE GOES INTO ADMINISTRATION AFTER RESCUE DEAL REJECTED
Interserve has government contracts to clean hospitals. Photograph: Christopher Thomond/The Guardian
The government contractor Interserve has gone 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.
About 16,000 small shareholders have lost their investment, with the business sold to hedge funds and banks via a “pre-pack” administration which means Interserve, which employs 45,000 people in the UK, can continue trading.
Interserve has thousands of government contracts including 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 the former justice minister Chris Grayling.
The company and the Cabinet Office, which oversees state suppliers, said there would be no disruption to the public services that Interserve manages and job losses were not expected in the short term and the pension scheme was protected.
Interserve’s chief executive, Debbie White, said: “Interserve is fundamentally a strong business and with a competitive financial platform in place we see significant opportunities as a best-in-class partner to the public and private sector.”
But the failure of another outsourcing firm, little more than a year afterCarillion’s collapse, sparked fresh calls by trade unions and Labour’s business select committee chair Rachel Reeves for public services to be taken back in-house.
The probation service trade union, Napo, called for the justice ministry to halt all tenders for new contracts with private companies. 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?”
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.
Its national officer Kevin Brandstatter said: “Ministers have learned absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public sector contracts.”
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.
Accountancy group EY managed the administration, which will be followed by 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, which owned 27% of the company, opposed a deal that would have seen the banks and hedge funds that hold Interserve’s £815m debt agree to cancel £485m of it. In return, lenders agreed to pump £110m of cash into the company and have taken ownership of nearly all of its stock, leaving shareholders with only 5% between them. That plan will now go ahead anyway, but with shareholders having been 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. 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.
“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.
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 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.
White and the 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.
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.