Sofa in a box brand Snug owed over £4m to unsecured creditors ahead of its administration, as the business failed with several attempts to raise funding to remain solvent.
Colin Hardman and Mark Ford, both of Evelyn Partners LLP, were appointed as joint administrators of Snug Shack Limited on 10 January 2023.
Subsequently, following an accelerated marketing process, a pre-pack sale of the company’s business and assets to Snug Furniture Limited, a newly established subsidiary of sofa retailer ScS, was completed for a sum of £875,000.
Detailed in newly filed documents on Companies House, it revealed that there was also another offer from an unconnected party, although this was less favourable than the offer from ScS. As part of the deal, all 53 Snug employees transferred over to the new business.
In the build up to Snug’s administration, the business, which was incorporated in June 2018 and achieved annual revenues of £20m in 2022, launched a fundraising process in Q3 of 2022 but was unsuccessful. “It was thought that at the time that the additional investment would enable the company to expand further by enabling it to deliver various brands, products and implement international growth initiatives”, the administrators report said.
There were also other attempts to raise funds ahead of its administration, but all failed, including a potential share sale to ScS in December 2022. Following the unsuccessful deal and coupled with a slowdown in sales, price increases from manufacturers and supply chain problems, the company struggled to remain solvent.
During the pre-pack sale agreement taking place, Snug was able to continue to trade, paying only critical suppliers, and being “careful not to take deposits for sales that it could not reasonably expect to complete in this time”. No new orders for stock were placed or accepted to avoid increasing creditor liabilities.
The business secured further funding from Santander bank to allow it to continue to trade while the pre-pack was being finalised. “This funding was limited to a short-term marketing period, on the basis that it could improve the outcome for creditors and it was agreed between the directors and administrators that a sales process would need to run on a highly accelerated timetable,” the report said.
The breakdown of the sale to ScS included £500,000 and £200,000 for goodwill and IP respectively, commercial records for £49,998, IT equipment for £1 and the majority of stock for £125,000.
At the date of administration, Santander bank was owed £170,000. Following the sale, it is understood that £154,000 has been repaid. Other preferential creditors are expected to receive a dividend, while the HMRC, owed £819,000, could receive payment following all other preferential creditor settlements.
As for unsecured creditors, with claims valuing over £4.3m, these are expected to suffer a shortfall of the entire amount. Within these include £3.8m owed to trade creditors and £512,000 owed to consumers.
Snug’s new business, Snug Furniture Limited, recently relaunched under the ScS ownership following the pre-pack sale. A statement from Snug said: “Four years ago, we founded Snug as a vehicle for change; to answer customers’ needs for a comfy sofa to be delivered in days. We pioneered the sofa in a box category and disrupted a slow and outdated industry.
“By all accounts we were successful for the first three years, self-funding to £30m revenue with a team of 50 and a community of over 300,000. However, in 2022, we experienced unprecedented trading conditions due to a 700% increase in shipping costs, supply chain shortages and the cost of living crisis, resulting in a sharp contraction in consumer confidence and spending on big-ticket items.
“As a result, on the 10th January 2023, Snug Shack Limited went into administration, and the business and assets were purchased by ScS Group Plc (‘ScS’) under a new company ‘Snug Furniture Limited’.
“Joining the ScS family has meant that the Snug brand and team can continue to serve our customers by spreading the ‘joy of sofa’ to homes across the UK. Unfortunately, there were a small number of customers and suppliers that have been affected by these changes and for that, we are truly sorry. We continue to do everything we can to support customers, old and new, through this time.”