The troubled British outsourcer Interserve has collapsed into administration, wiping out shareholders and raising questions over the long-term future of a business that employs 65,000 staff worldwide.
Interserve, one of the UK government’s biggest contractors, rushed to reassure employees that a pre-pack administration agreed with creditors meant business would “continue as normal”.
But the takeover by debtholders is a blow to a sector that had been hit by contract scandals and profit warnings, even before the liquidation of rival government contractor Carillion in January last year.
Interserve employs nearly 45,000 people in the UK, twice the number of Carillion. It delivers government services, including probation and home nursing, as well as the maintenance and building of schools, hospitals and offices.
The staff will be transferred to new management, established by the company’s administrator EY, and the debt holders that now own the company, which include high street banks HSBC and RBS as well as hedge funds Cerberus, Emerald Asset Management and Davidson Kempner Capital.
The existing board will be replaced. Debbie White, the chief executive, and Mark Whiteling, finance director, are expected to be retained. Both were parachuted in when the company first ran into trouble almost three years ago, following a series of ill-timed acquisitions and a disastrous foray into energy-from-waste contracts.
Interserve has a turnover of £2.9bn, 70 per cent of which comes from the UK government. The government has indicated that it will continue to award contracts to the company.
A Cabinet Office spokesperson said: “This announcement will not affect jobs or the provision of public services delivered by Interserve. We are in close contact with the company and we are confident a positive way forward will be found.”
But Jon Trickett, a Labour shadow Cabinet Office minister, said the “government has clearly learnt nothing from Carillion’s collapse”, adding that his party would “put an end to this reckless outsourcing once and for all”.
Shares in Interserve — which has about 16,500 smaller shareholders — were suspended on Friday, rendering them worthless. The company insisted that the pay of employees, pensioners and subcontractors would be protected, with lenders promising to wipe out the company’s £738m of debt and inject £110m into the business.
But there are fears that the administration deal will be costly and likely to further damage confidence in the business. Construction subcontractors have been taking their tools home in case there are site closures, while the Unite union, said employees are worried “for their future”.
The prepack administration followed a knife-edge vote on Friday where Interserve’s management and lenders were defeated in their plan for a debt-for-equity swap that would have enabled shareholders to retain 5 per cent of the company’s equity.
It was a pyrrhic victory for Coltrane, the US hedge fund that is also the company’s largest shareholder. It led opposition to the deal but the value of its 27 per cent shareholding has now been wiped out. As well as voting against the deal, Coltrane has threatened to sue Interserve’s directors and advisers for mismanaging the refinancing and failing to consult shareholders.
Coltrane’s adviser declined to comment, other than to say: “I voted for Donald Trump, which is even more controversial.”
One developer who holds £50m of construction contracts with Interserve said he was concerned that building projects would stall. “It has already affected momentum on sites,” he said. “It’s not that subcontractors are owed money but even if they have worked for three weeks this month, they are worried that they won’t be paid.”
Glyn Barker, Interserve chairman, said the company had “only been able to continue trading until today because lenders have been supportive”.
“Lenders have told us they will not let us continue trading on the current basis,” he added.
Debbie White said: “With a stronger financial platform in place, Interserve will be able to concentrate on delivering value for our customers.”