Interserve has fallen into administration after shareholders roundly rejected a rescue deal designed to relieve it of a more than £630m debt pile.
The public outsourcer has announced it expects to fall into the hands of administrators after investors voted to reject its proposed deal by 59 per cent to 41 per cent at a general meeting this morning.
The firm has been embroiled in a power struggle in recent weeks with its lead shareholder, US hedge fund Coltrane Asset Management, over the terms of the emergency deal.
Interserve's board said it intends to apply to the High Court in London for the company to be placed into administration.
Workers at the NHS and the Foreign Office are among the outsourcer’s 39,000 UK employees, and 70 per cent of its annual £2.9bn turnover comes from the government. An expected pre-pack arrangement managed by EY would keep public services running smoothly for the immediate future, meaning jobs will not be lost.
Earlier in the day, a well-placed source told City A.M. the firm was expecting to lose the poll.
The crunch vote has come 14 months to the day after Carillion, another major public sector outsourcer, collapsed owing £2bn to 30,000 suppliers, subcontractors and other short term creditors.
A spokesman for the Cabinet Office, which awards government contracts to firms like Interserve for the delivery of public services and is the company’s largest client, 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."
Interserve has set up a hotline for employees who may be concerned about whether they will return to work on Monday, and has assured it is "business as usual".
"Turn up for work as normal, you’ll be paid as usual," it said.
If you’re an Interserve employee, we want to reassure you that it’s business as usual. Turn up for work as normal, you’ll be paid as usual. If you’ve got any questions, please call our employee hotline 0333 207 4180. pic.twitter.com/8WZ5P8FYKE— Interserve (@InterserveNews) March 15, 2019
But Labour MP Rachel Reeves, chair of the influential Business, Energy and Industrial Strategy committee (Beis) tweeted: "First Carillion and now Interserve. The government's model of outsourcing services to cut costs has failed. It is time to bring these contracts back in-house."
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/yjfvTqBmpo— Rachel Reeves (@RachelReevesMP) March 15, 2019
Hedge fund Coltrane, which holds a 27.7 per cent stake in Interserve until yesterday, when it jettisoned 1.9 percentage points of these, has vigorously opposed its deal for weeks, even threatening to sue the firm’s directors.
Under Interserve's deal's terms, shareholders would have been left with five per cent of the company and the right to buy new shares up to a maximum of 33.3 per cent.
The firm had accumulated huge debts after a loss-making foray into building energy-from-waste plants in 2016, the last of these it is still handing over to clients.
Before the vote, chairman Glynn Barker said the company had intended to raise money via a rights issue, but this was abandoned when "the volcano of energy-from-waste exploded". He added comparisons to Carillion in the last year had not been helpful in turning the tide of public and investor opinion.
Interserve needed 50 per cent of shareholders to back the deal to avoid going into administration, but it fell well short of this, with 59 per cent voting against and 41 per cent voting in favour.
Chris Baldock, a private shareholder, told City A.M. he had voted in favour of Interserve's deleveraging plan, but added: "The handling of this has been very disappointing for the small shareholder, that a once great company has fallen into such a poor financial state in such a short space of time."
There is a chance Coltrane will seek to buy parts of the business to seize control over the weekend. It is unclear how civil servants at the Cabinet Office, which was in regular contact with the firm as it drew up the original rescue deal over Christmas, would feel about a US hedge fund overseeing British public services.
For all its campaigning in the last few weeks, Coltrane did not send anyone to the meeting this morning, instead sending a proxy. When asked which way he had voted by journalists, he declined to comment on the situation, other than saying "I voted for Donald Trump".