Scottish M&E firm Richard Irvin & Sons has collapsed, leaving its unsecured creditors facing losses totalling £17.4m.
The Aberdeen-based company suffered from a cashflow squeeze as it waited for payment on final accounts and was forced to bring in EY as administrators on 19 December, according to the joint administrators’ report.
After reviewing the company’s accounts, EY determined unsecured creditors were owed around £17.4m and were unlikely to receive anything beyond a small payment from the prescribed part, from the administration.
A prescribed part is an amount generated from asset sales up to £600,000 that can be shared among the unsecured creditors.
Around 109 employees who lost their jobs in the collapse are expected to receive around £200,000 for holiday pay and pension contributions.
A further 337 jobs were saved after the company’s facilities management business was sold to London-based turnaround specialist Rcapital for £1.1m.
One employee who was laid off and asked not to be named told Construction News the collapse had come “out of the blue” when staff were told of the firm’s failure on the afternoon of 19 December.
He alleged that some suppliers had stopped providing goods and services in the weeks leading up to the collapse.
He said: “We did have some loss-making contracts like everyone, but made big gains on others so I don’t know where the problem came from.”
Bank of Scotland was also owed £3.7m, which was secured against the company’s premises in Aberdeen. However, EY does not believe the sale of the property will bring in enough cash to repay the bank in full.
The 111-year old company had faced tough trading conditions over the last three years. Unaudited accounts for the nine months to the 31 August 2018 showed it faced a £625,000 pre-tax loss on revenue of £34.9m.
Margins on contracts had dwindled in recent years, according to EY, and cashflow was squeezed as the firm’s M&E business waited for payment as final accounts on recently completed jobs were scrutinised.
Pressure on the firm’s cashflow was increased by a demand for payment from HMRC. This led the firm to agree to a £1m overdraft extension with the Bank of Scotland in September.
Since July last year the company had also been in talks to sell its FM business to another firm, with a letter of intent being signed at the start of September.
However, in November the buyer decided to review the company’s trading results for November and December before handing over the money.
This delay to the transaction led to the Bank of Scotland refusing a further extension to the overdraft facility and forced the directors of Richard Irvin & Sons to file a notice of intention to appoint administrators on 28 November.
A pre-pack administration then took place, a process whereby a company’s assets are marketed before the company enters administration, under the assumption they can achieve a higher price than they would be under a break-up of the company once it is in administration.
An “accelerated marketing” of the business was carried out before the administrators came in, but buyers were only interested in the FM business which was subsequently sold while the M&E arm ceased trading.