Black Sheep Brewery: Taxpayers and creditors set to lose out on millions from administration

The Masham-based company, which also runs four pubs in Yorkshire, was sold last month to London investment firm Breal Capital for £5m in a pre-pack administration deal – a process that effectively allows businesses to continue trading seamlessly as before with the same name but can cause controversy because of its impact on creditors owed money.

The move saved around 140 jobs and secured the future of the business after the company made a £1.6m loss in 2022/23 as it struggled with the fallout from the pandemic and rising costs. CEO Charlene Lyons said today that a “local employment catastrophe” had been averted by the deal.

In a newly-published report, administrator Teneo Financial Advisory has revealed creditors are collectively owed more than £6m – much of which is unlikely to be ever repaid.

The outstanding money includes a large proportion of two Government-backed Covid loans taken out by the brewery; one of which was only taken out last summer.

In August 2020, it took out a £3.125m Coronavirus Business Interruption Loan Scheme (CBILS) and in July 2022, took out a further £1.6m from the Recovery Loan Scheme (RLS) initiative.

The report reveals that £2.5m of the CBILS loan and all £1.6m of the RLS loan remained outstanding at the time of administration. As part of the sale a further £373,000 has been repaid to lender Close, leaving around £3.7m outstanding. The report said that “whilst further distributions will be made, Close will not be repaid in full”.

Both loans are backed by the Government, meaning 80 per cent of the outstanding CBILS money and 70 per cent of the RLS loan will be covered by the state.

HMRC is also owed £1.2m from the brewery side of the business and £135,000 from the retail pub side. The report said the £135,000 is not set to be repaid and the £1.2m is unlikely to be repaid in full.

The report also states unsecured creditors are collectively owed £1.4m – money that will not be returned. The report lists 376 organisations that are owed money.

It also said there will be no return of money to a company called Dewscope, which provided £500,000 in loan notes in January this year.

Around £30,000 owed to Lloyds on corporate and business cards as well as a VAT bond is not expected to be repaid.

Some money has been repaid.

Close, which was owed £6.3m including the Covid loans, has had £2.6m returned, while an outstanding £1.5m asset finance arrangement with Lombard will not be adversely affected by the transaction.

Charlene Lyons, CEO of Black Sheep, said: “The Black Sheep Brewery Plc and BSB Retail Limited entered Administration as a result of trading difficulties encountered by the company, subsequent to the Covid pandemic and the more recent energy price rises, leading to recessionary consumer markets.

“The assets of the company were purchased out of administration by a NEWCO, namely Black Sheep Brewing Company Ltd. This company is owned by the Breal Group and will continue to trade as Black Sheep.

“The Breal Group acquired the assets, out of administration, to secure the business for the long-term, and this has saved the jobs, and futures of the people that worked there. Black Sheep is a significant employer within the town of Masham, this deal has prevented, what could have been a local employment catastrophe.

“We do recognise that this is a difficult time for all shareholders and stakeholders alike, while the industry continues to face challenging times. In the last 12 months, 45 breweries entered insolvency in the UK, a three-fold increase on the previous year, as the cost-of-living crisis has squeezed household disposable income.

“This has had an extreme and adverse effect on all brewers’ sales, at a time when their own costs and inflation are high. Black Sheep has not been immune to these factors, leading it to the administration process. It is highly likely that many more will follow in the coming months.

“I would like to thank you for your ongoing support and patience, and I would like to assure you that the beers you all love will continue to be brewed from Black Sheep’s home in Masham, albeit under new ownership.”