What are the benefits and drawbacks of a pre-pack liquidation sale?

A well-known Bradford designer and manufacturer of bespoke kitchens for commercial and residential customers have been bought out of administration saving all 36 jobs.

Karmik Limited, trading as Designer Factory Kitchens, has been acquired by Karmik UK and will be operated by the existing management team.

Joint administrators Kelly Burton and Lisa Hogg of insolvency and business turnaround specialist Wilson Field were appointed to Karmik on 13 March.

The company, which was incorporated in 2013, had suffered two bad debts in 2016 totaling almost £100k causing severe cash flow problems and HMRC arrears.

The total value of the pre-pack deal is undisclosed but it includes the business and the assets of the company based at Fairfax House in Drighlington.

Kelly Burton, director and insolvency practitioner at Wilson Field in Leeds, said;

“DFK celebrated its 25th anniversary recently but as a result of suffering two significant bad debts found itself facing a cash flow crisis.

“After attempting without success to raise further finance, the directors sought advice and as a result of taking prompt action we have been able to save the DFK brand and all 36 employees’ jobs. As the jobs were transferred to Karmik UK, this alone saved over £44,000 in redundancy and wages claims.”

Managing director Mike Baziw commented;

“It is very frustrating when events which are outside of your control threaten the very existence of your business and the jobs of a loyal workforce.

“Working with our advisors and staff, the future of DFK now looks very positive and we are in a position to offer our customers the same high quality of products and service.”

The directors of a  previously profitable crane hire business approached Wilson Field for advice following a significant downturn in turnover. The drop-off was caused by the nationwide lockdowns following the outbreak of Covid-19.

The business relied upon several large UK-based housebuilders for their income, who were also negatively impacted by the government restrictions.

The Directors attempted to restructure the business to minimise overheads. However, a winding-up petition was issued during this time, and with no funds available to pay the debt due, the Directors approached Wilson Field to explore the option of a pre-packaged administration.

After an extensive marketing period, a sale of the business and assets was achieved to an associated company, and saved all the jobs at the business.

Director and insolvency practitioner Kelly Burton said:

“The business was severely impacted when the country went into lockdown as lots of regular clients, were themselves unable to work and generate income. However, after working with the directors, we arranged a pre-pack administration, which saw the business and assets purchased, with all of the company’s employees keeping their jobs.”

Unsecured creditors owed money by a Derbyshire manufacturing company which went into liquidation are to receive a higher than the expected dividend of 60p in the pound.

A total in excess of £128,000 is due to be distributed to unsecured creditors of Whatstandwell-based Derwent Castings Limited, whose claims totalled over £192,000.

The company, whose roots date back to the 1940s, had traded profitably for a number of years but in late 2013 / early 2014 saw the cancellation of its largest sales contract which represented 70 per cent of its turnover.

Bosses at the company, which employed 16 staff including three directors, struggled to attract replacement business and had to drop prices. Further business was lost as a result of foreign competition.

Sheffield’s insolvency specialist Wilson Field was called in as liquidator and worked with the creditors’ committee of Derwent Castings Limited to secure the positive dividend.

Andy Wood, associate director and insolvency practitioner at Wilson Field said:

“Dividends for insolvent companies are generally low, or nothing, for a variety of reasons – cost of staff redundancies, difficulty collecting outstanding invoices, selling assets in a forced sale situation, selling specialist assets which have limited appeal to purchasers, deteriorating or perishable assets, as well as other costs involved.

“However, thanks to a very positive relationship with the creditors committee, I am delighted to return a healthy dividend to the unsecured creditors in the region of 60p in the pound.

“The supply chain is often greatly affected by a liquidation and in this case we have been able to help creditors.”

Derwent Castings Limited was incorporated in August 2002 and specialised in iron casting from the five-acre Derwent Foundry site at Whatstandwell near Matlock.

However, the iron founding operation at Derwent Foundry was first introduced back in 1946 by Wragg & Hawksley which produced cast iron pipes for the water industry.

In 1950 the foundry was acquired by WH Davis & Sons Ltd to supply castings for their railway wagon building business. Following a management buy out in 1984, the company was renamed Derwent Foundry Ltd and following its closure in July 2002, was bought by its present owners and renamed Derwent Castings Ltd.

Amongst jobs carried out on site were moulding using loose pattern and modern air setting (boxless) sand systems; metals work using the latest in electric induction melting producing a wide range of grey, SG and alloy irons; an independent Namas approved test laboratory, finishing, pattern making and machining facilities.