Creditors suffer again as details of second Mereway collapse emerge

Creditors of collapsed kitchen manufacturing specialist Mereway Kitchens are expected to suffer a shortfall of over £4m following its administration.

Huw Powell, Paul Wood and Mark Malone, partners at Begbies Traynor, were appointed as joint administrators of Highlight Green Acres Limited on 25 January 2024.

Following the appointment, around 120 jobs have been impacted with administrators winding down the business with the assistance of 15 remaining staff. These roles were also made redundant.

This marks the second time Mereway has entered administration, with the first back in August 2023 after the company suffered a downturn in sales volumes, which, coupled with rising material costs and the impact of Covid, resulted in the business’ collapse.

Upon appointment of BDO, the joint administrators completed a sale of the business to Highlight Green Acres Limited, which was incorporated on 10 August 2023 and is owned by parent company Sigma 3 Group Limited, for a sum of £530,604.

The second administration is due to poor sales volumes, which left the company in an unprofitable position, with the “weakening market” and impact of the previous collapse affecting consumer confidence.

Detailed in an updated administrators report, it is understood that around £906,000 is expected to be realised from company assets, mainly through book debts valuing £687,000 – although this is reduced from a book value of £1.5m. Therefore, preferential creditors, including employee claims of £56,000, and HMRC claims of £650,000 are expected to repaid in full.

However, as for unsecured creditors, claims totalled £4.3m and included £1.8m owed to 154 respective employee redundancy claims as well as an intercompany debt of £1.5m, owed to parent company Sigma 3 Group Ltd. It is expected that creditors will suffer a shortfall of £1.4m.

The second administration adds to a previous creditor shortfall of £4.8m, resulting in a combined shortfall sum of £9.1m.

At the time of appointment administrators said that while a sale was explored, it was deemed as unachievable due to the losses and “cash flow impact”.

A statement said: “Substantial investment and significant progress was made achieving approximately break-even trading during October and November 2023. However, Mereway has suffered from falling consumer demand as a result of economic factors and has been unable to maintain the required sales volumes needed to make the business profitable.

“Although alternative options were explored, the resultant trading losses and cash flow impact left the business with no option than to cease to trade.

“Options for sale of the business were explored but given the timelines available and the position of the business this was not possible. As the Company has ceased to trade and completing work in progress is not considered viable, the Joint Administrators do not propose to proactively market the Company’s business or seek discussions with interested parties as the prospect of any sale is considered highly speculative.

“Unfortunately, the Company has ceased to trade and completing work in progress is not considered viable, so no further orders will be fulfilled.”

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