Perhaps it wasn’t the Chinese imports then?

One of the largest liabilities was a £45.6m “pension scheme deficit excess”, only exceeded by the £60m owed to other companies within the group as part of complex internal financing arrangements.
A summary of Caparo’s assets reveals that it had assets with a book value of £50m available to preferential creditors but these were expected by administrators to realise just £73,000.
Caparo, which was involved in the steel industry, was thought to have been the latest victim of the crisis hitting the sector when the business collapsed in October.
However, the company – started by billionaire Lord Paul more than 50 years ago – was later revealed to have already been struggling, and its troubles were exacerbated by its use of asset-based financing, which involves securing loans against sales invoices. The already difficult trading environment Caparo faced meant the loans the business could raise declined as its sales slipped.

Just not a very well run business in fact.

14 thoughts on “Perhaps it wasn’t the Chinese imports then?”

  1. So Much For Subtlety

    It can’t have been a not-very-well-run company. Willie Hutton wasn’t on the board.

    Of course if Ritchie had been on the board ….

  2. Quite possibly Tim but a pension fund black hole can result from regulatory interference as well as a drop in sales due to dumped Chinese steel.

    Better management would likely have made a better fist of dealing with these adverse conditions but it seems pretty idiotic to disregard them completely as you seem to do.

  3. And a classic case of New York Seppuko..

    Unless british penthouses lack the features that actively prevent you from kissing the tarmac at terminal speed, of course.

  4. assets with a book value of £50m available to preferential creditors

    Not if the receivables already belonged to the bank.

  5. @ TMB
    No, these would be physical assets, valued at cost less depreciation. It’s just that they are virtually worthless to anyone not in the steel business. How much you pay for a second-hand slab-cutter set in concrete in the middle of a closed-down steel plant?

  6. @john77
    You could well be right but the snippet above isn’t explicit about that, is it? But I entirely agree with your thrust here that the physical assets of a defunct steel plant have little intrinsic value and creditors who took comfort from their value were rather naive.

  7. @ TMB
    It says “book value” and “available” – accounting jargon.
    The receivables wouldn’t be “available” to “preferential creditors” because they were pledged to a “secured creditor”.
    I agree that it is far from clear to anyone who doesn’t read accountantese.

  8. The article isn’t very clear. Preferential creditors in the UK are basically the HMRC and the employees. They rank behind creditors with fixed charges but ahead of creditors with floating charges. The receivables would probably be subject to a floating charge, so they ought to be available to pay employees and taxes if the customers can be made to pay. However, there might be a raft of fixed charges, eg mortgages on premises, that will swallow up this money. However, it is misleading, if such is the case, for the article to claim that this 50m is available to the preferential creditors. In either case, this was a company in desperate trouble and the directors had better be sure they have good lawyers. Fraudulent trading and preference are onerous offences.

  9. @ Diogenes
    A creditor may have a debt secured via a floating charge over a category of assets in which case it ranks ahead of other creditors but only in respect of that category of assets. .

  10. John

    As long as your words are consistent with the Insolvency Act, then I make no comment :

    “Preferential debts—

    (a)rank equally among themselves after the expenses of the winding up and shall be paid in full, unless the assets are insufficient to meet them, in which case they abate in equal proportions; and

    (b)so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures secured by, or holders of, any floating charge created by the company, and shall be paid accordingly out of any property comprised in or subject to that charge.”

  11. @ Diogenes
    Sorry, you’re right – I’m out of date. I missed that sneaky bit in the 1986 Act, which is contrary to the spirit of the constitution.

  12. I wonder if I’ve heard this before?

    A steel maker in the west is in financial trouble due to high labor costs. This company then takes out far more in loans than it can handle. The economy crashes.

    Hopefully someone keeps at least 1 operational blast furnace in the UK. Once everyone finally understands how stupid trying to power your whole grid with wind and solar is you’re going to need a lot of steel again. Maybe some of that cheap foreign steel should be going into a national metals reserve.

  13. There’s some value in keeping minimal production running if it avoids having to pay the clean up costs for shutting down a large site

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