Interserve faces a crunch vote on Friday over its proposed rescue plan. If shareholders fail to back the debt-for-equity deal, the firm could go into administration by the weekend. The firm employs 65,000 staff worldwide, 45,000 in the UK, cleaning schools and hospitals, running probation services and building roads and bridges. Interserve has said the company “is in a critical financial situation”. It accumulated debt after construction project delays and a failed energy-from-waste project in Derby and Glasgow and hopes shareholders will agree to the strategy, although it would dilute shareholders’ holdings. Attention focused on Interserve’s financial situation after fellow contracting and construction giant Carillion collapsed in January last year with debts of £1.5bn. Following Carillion’s collapse, the government launched a pilot of “living wills” for contractors, which set out how critical services should be run in the event of a crisis. Interserve is one of five suppliers taking part.
The proposed rescue plan involves cutting the firm’s debts from nearly £650m to £275m. Interserve would issue new shares which it would give to its creditors in exchange for debt. That would hand lenders the lion’s share of the firm, and existing shareholders would be left with heavily watered-down shareholdings totalling just 5% of the firm’s worth. “Our plan preserves some value for shareholders. This will not be the case if the proposals are voted down,” the firm said.
Interserve’s largest shareholder, Coltrane Asset Management, has opposed the proposed rescue. The hedge fund has been pushing for an alternative deal whereby a smaller proportion of the firm goes to lenders, and shareholders retain a larger holding. If no rescue plan is approved the company is likely to go into a pre-pack administration, which would wipe out shareholders entirely but allow the firm to keep operating. A pre-pack administration lets a company sell itself, or its assets, as a going concern, without affecting the operation of the business. Administrators take over the running of the business to protect creditors and shareholders lose their investments.