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The links effect
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Page 23
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The collapse of two haulage firms has resulted in a pattern emerging of corporate purc4ses involving the companies' own assets to fund these deal. CM reports on the background of these adininistrations.
Words: Chris Tindall
THE FALLOUT GENERATED by the administration of two haulage firms has led to Commercial Motor probing a complex network of companies and directorships held by two men Our investigation demonstrates how businesses have been sold using their own assets loaned to non-trading companies to fund the purchases.
These highly leveraged deals left two transport companies dangerously exposed in the economic downturn and fears are increasing over the future of a third Newcastle-based Eric Short Haulage went into administration on 21 April, just 24 hours before a petition to wind up the company was due to be heard in London.
The company's most recent balance sheet shows that in November 2007 it had assets worth almost £500,000 and shareholders' funds of £900,000.
However, come the beginning of 2009, it was amassing county court judgements, and its failure to pay supplier Linton Fuel Oils led to the fuel distributor petitioning for the company to be wound up. Linton Fuel Oils says it will pursue its "not insignificant" debt through the administration process Its lawyer Christopher Mackie adds. "All other legal proceedings are 'stayed'. There's frustration; [Linton] would like to have placed it into compulsory liquidation?'
The speed of Eric Short Haulage's decline is surprising given its balance sheet in 2007. Commercial Motor has discovered, that in December 2007, the business was sold to Alex Rawlings and Shahid Hussain after one of their non-trading companies, Westway Consultants, was loaned £1 .2m by Eric Short Haulage to help buy it
Company directors
This deal was funded through Boston Commercial Finance (BC F), a finance company in Staffordshire The purchase involved the haulier taking out a mortgage, a factoring agreement with BCF and a £482,000 sale and leaseback of assets deal.
But Rawlings and Hussain aren't just directors of this Newcastle haulage outfit; they are also directors cif at least two other road transport b sinesses.
One, Eu opean Freight Link (EFL), went into dministration in December 2008 — ju t two days before P&O Ferries H Idings was scheduled to hear its pa tion for winding it up.
Redundancies
According to administrator Jeremy Bleazard at XL Business Solutions, it is unlikely that the 214 EFL creditors will receive any of the estimated £1.8m owed to them The report from Bleazard's administrators reveals that EFL:s previous director sold the business in February 2008 — Just 10 months before it failed — in another deal brokered through BCF and almost identical to the Eric Short sale. The deal allowed , Rawlings to buy the firm's shares through another non-trading company called Kingsgate Enterprises, apparently by using 2120,000 of his own money and the balance of funds financed through BCF. EFL continued to trade with BCF acting as a factoring company. The report reveals that BCF then starved the business of repaying its own funding and finance charges causing EFL to hit cash flow problems
Redundancies
At this point, Rawlings found a new factoring firm, Caveman Consultants, to take over the account in October 2008 When P&O attempted to wind up the struggling firm two months later, it was Caveman Consultants that stepped in to appoint an administrator and prevent the company going into compulsory liquidation. EFL stopped trading and all its staff were made redundant.
Creditor McNamara Freight in Ipswich is owed £5,500. Joint MD Paul Sculpher says it wasn't informed that the directorship changed in 2008 to Rawlings and Shahid "It's not a requirement, but it's common practice that businesses reassure customers they will continue the same way," he complains. "All I have had is a letter from a firm, XL Business Solutions, saying it was in administration We hired a debt collector to try to collect the money."
A third purchase
Another creditor, Matlock Transport, says it was a shock when EFL went into administration "We didn't do a lot, but it came as a surprise because of the amount of years it had traded," says director Julian Lowe.
BCF's sister company, Boston & Maine (B&M), helped with a third purchase for Rawlings: Norfolk-based John Mack Haulage, in November 2007. Previous owner William Hulme says he was approached by B&M, after it had "trawled" for suitable companies. It told him it had clients interested in buying his business.
B&M is under investigation by the Serious Fraud Office (SFO) for alleged asset stripping, an SFO spokesman says its investigation refers to "Boston & Maine and related firms in connection with suspected asset stripping" Hulme claims he was paid a lump sum then 16 monthly payments until they stopped two months ago. He's now in dispute over the outstanding amount, which he estimates to be about £50,000
Doing it property
Hulme also says he has recently been interviewed by the SFO about B&M. But, he adds "I don't attach blame to anybody. I have only had dealings with Alex Rawlings and he seems to be genuine. Anyone would struggle in the haulage industry at this time. There was no intention to do anything other than do it properly."