Insolvency warning for struggling Grimsby firm Cosalt
INSOLVENCY proceedings could begin before the end of the month at Cosalt Plc, directors have warned, as Grimsby's only listed company struggles to stay afloat with a £17 million overdue debt to repay.
The length of time it will take to secure shareholder approval for the sale of the two main operating divisions – a salvage operation to help pay off what is owed to lenders and the pension fund – could itself sink the once proud town firm, it has confirmed.
With only a skeleton staff within a scaled down Europarc head office, the divisions subject to ongoing sale negotiations – offshore and workwear – are based in Aberdeen, Stockport and Barnsley, as previously reported. With loan facilities expired and guarantees expiring, securing the banks' ongoing support is seen as vital to carry it through, but it comes with conditions.
David Ross, chairman, and Sovereign Holdings, have both acted as guarantors to the banks, but these run out at the end of March.
RBS and HSBC, Mr Ross, Sovereign and Oval – a company controlled by the third generation Ross to chair the 139-year-old firm – all had loans that expired at the end of 2012.
Oval and Mr Ross have not demanded repayment, and while no agreement has been reached to extend, the company has continued to make drawdowns under the working capital facilities.
Sovereign has demanded repayment of its loan of £1 million, but has taken no further action, and having reserved their position in relation to their facilities, the banks have now written to the company raising concerns about "an expensive and lengthy process" to seek shareholder approval, and whether there would be sufficient funds to continue to trade until the disposals are completed.
The letter also sets out a series of conditions which Cosalt is required to meet to avoid the banks enforcing their security, principally protecting their returns from sales.
These include that the company must have funding from lenders other than the banks in place to meet the costs associated with seeking shareholders' approval in a manner which does not reduce the money raised from the sales, and to fund any losses and working capital requirements of the group's business onwards. In addition, they require that Mr Ross and Sovereign extend the expiry date of the bank guarantees beyond the expected date of the disposals.
In the statement, chief executive Trevor Sands said: "The company has had and continues to have extensive discussions with existing and potential funders but no alternative source of funding is currently available. In the event that the banks conditions cannot be met, in the absence of the banks agreeing an alternative course of action to enforcing their security, the directors consider that Cosalt Plc would be likely to enter insolvency proceedings on or before February 28."