Companies 'should check Interserve contracts' following outsourcer’s administration

Out-Law Analysis | 19 Mar 2019 | 2:49 pm | 2 min. read

ANALYSIS: Companies which had dealings with collapsed UK outsourcer Interserve Plc should check the contracts and guarantees they held with the company and its subsidiaries.

Interserve Plc entered into administration last week and immediately sold all subsidiaries in a pre-pack deal agreed with creditors. Under the deal, Interserve’s business and assets were transferred to a new parent company controlled by lenders including a number of major banks.

All Interserve’s subsidiaries remained solvent under the deal, with the aim of providing continuity of service for customers and suppliers. This means that they continue to trade normally.

Customers and suppliers should make sure they are aware which of the Interserve entities they were dealing with. They can do this by checking contracts and any guarantees to see which Interserve entities they have contracted with and whether they will be impacted by Interserve Plc entering into administration, and what rights companies have.

If Interserve is providing services, they may wish to engage with Interserve contacts to obtain assurances where possible around the ongoing trading of the relevant group companies and any change to the terms of that trading.

Companies should also consider reserving their position in respect of any events of default or termination events which could be triggered by the administration of Interserve Plc.

Any claims outstanding against the subsidiaries will be unaffected by the pre-pack administration.

Here are some questions to ask yourself if you find yourself in this situation:

What has happened? Interserve Plc has entered into administration and has sold its shares in all subsidiary companies to a newly incorporated Interserve company by way of a pre-pack administration sale. This buyer entity will be 100% owned by the existing bank syndicate.

What is a pre-pack? A pre-pack is type of administration sale which is negotiated in advance of the appointment of administrators and takes effect immediately upon the appointment of administrators becoming effective. Its aim is to transfer the business with minimal disruption to the services provided by the Interserve group.

What happens to the services Interserve is currently providing? Press reports suggest that the pre-pack sale will not affect ongoing services or projects. As no other Interserve companies are entering into administration, they will continue to trade as normal at this stage.

What happens if I have claims against Interserve Plc? As Interserve Plc is now in administration, the statutory moratorium under the Insolvency Act will prevent claims from being commenced or progressed without the consent of the administrators or leave of the court. In the absence of any security or proprietary claims, normal trade creditors or litigation claims against Interserve Plc will be treated as an unsecured claim in the administration.

Any guarantees given by Interserve Plc are now likely to be worthless. It is expected that where counter-parties have the benefit of a Plc guarantee, it is proposed a new topco guarantee will be provided by the purchaser.

The other Interserve group companies are not going into administration at this time and so any claims will not be affected and trading should continue as normal.

Interserve employs around 68,000 people worldwide and has a turnover of £2.9 billion, with over two-thirds of that derived from UK government contracts.

The Interserve administration follows the 2018 collapse of construction company Carillion, which was also a major UK government outsourcer. Earlier this year the Cabinet Office published a new ‘outsourcing playbook’ in a move to codify outsourcing best practice amid concerns about the financial health of companies providing services to the public sector.

Andrew Robertson is an insolvency law expert at Pinsent Masons, the law firm behind Out-Law.com.