Adjustable beds and mattresses manufacturer Furmanac has been sold via a pre-pack deal after entering administration.
Gareth Wilcox and Paul Harding, both of Opus Restructuring LLP, were appointed as joint administrators of Furmanac Limited on 21 July 2022.
The company became insolvent due to a number of factors, including the loss of some of its customer base in 2018 and 2019, which saw turnover reduce down to £12m, from its previous peak of £18m, with an operating profit of £1.142m in 2019. This was impacted by interest on funding to the amount of £713,000.
The company addressed this by refinancing with a loan in March 2020 to reduce interest payable, but was completed at the time of the first Covid-19 lockdown, which impacted the company’s ability to trade. A new loan was secured to assist with cash flow during the pandemic.
Following the ease of restrictions, the company tried to negotiate a long-term payback agreement with the HMRC over debts owed during Covid. The HMRC would only allow a year to repay, which meant, alongside other loan and funding repayments, the company could no longer trade in its current form and generate sufficient volumes to meet liabilities.
Despite January 2022 to March 2022 looking profitable and cash positive, an audit for the 2021 accounts revealed the need for a significant stock write-off on the obsolete stock that had built up during the financials years of 2020 and 2021.
Ahead of being placed into administration, the company had several suppliers on payment plans to maintain supply and could only afford to pay wages and critical component suppliers. Demands were also issued against the company from a number of creditors.
Upon entering administration, a pre-pack sale was agreed and completed on 21 July 2022 to Furmanac Group Ltd, a newco under common ownership with Gee Hilliard and John Hilliard named as directors.
The sale totalled £378,000, with £220,000 paid on completion. The balance will be paid over a period of 18 months. All 160 jobs were saved.
Administrators said: “The purpose of the proposed pre-pack Administration is the sale of all assets of the company which will include the preservation of the company’s contracts in progress and the continuity of guarantees provided on products. A higher value will be achieved for the company’s goodwill, physical assets, and stock than in a breakup sale. It will also reduce creditors’ claims in terms of the 160 employees as they have been transferred under TUPE.
“Had the company been placed into liquidation, it was likely that only the ex-situ values will be achieved for the physical assets and the employees would be made redundant increasing creditor liabilities.
“It is anticipated that there may be sufficient funds to pay a dividend to secured and secondary preferential creditors only.”
The administrators report outlines a figure of almost £400,000 that is estimated to be made available for secured creditors. These include the HMRC, ESF Loans and Lloyds Bank, owed £1.8m, £950,000 and £616,000 respectively.
As for unsecured creditor claims, these valued a combined figure of £2.4m, with £1.7m owed to the trade.
It is expected that creditors will suffer an overall shortfall of £4m, although this figure could have reached £5.8m without the pre-pack agreement.