Painful final days of a firm gasping for breath

Administrator Deloitte's analysis of the York company's death throes reveals a company desperately trying to engineer extensions to loans, forward payments for work, and breathing space from debts.

The 164-year-old group, which started life as a building company, is being carved up to satisfy its creditors. But hundreds of its former staff have been left empty-handed by the group's collapse.

Jarvis called in the administrators in March after its banks refused it further finance. Its days were numbered when in January 2009 its biggest customer Network Rail (NR) announced it was cutting its track renewal programme by 30 per cent, delaying a 4bn portion of work. Meanwhile the global recession eroded plant and freight volumes.

For a company which admitted liability for the fatal Potters Bar rail crash and yet managed to stay afloat; a group which managed to survive a debt-for-equity swap in 2005, its over-reliance on rail proved its downfall.

In the months before its collapse, a streamlined management team, led by chief executive Stuart Laird, had been trying to diversify the group. A 55m contract with Chiltern Railways was just around the corner, and it had also won its first small signalling contract with London Underground.

But Deloitte said these contracts and cost cuts were not enough to save Jarvis. "The group struggled to trade within its existing lending facilities and creditor balances increased, including amounts to HMRC," said administrators.

A report to creditors of its accommodation services (JAS) arm said Jarvis came close to breaching its banking covenants in November 2009. Directors had been locked in talks with its banks to persuade them to extend facilities or provide an advance.

Jarvis's secured lenders, Bank of Ireland subsidiary Burdale Financial Services and Bank of America, were owed 17.1m at the time of its collapse.

Directors tried to persuade NR to speed up new work, and the state-backed body obliged on a number of occasions by paying for work in advance.

Jarvis was also said to have used HMRC's Time to Pay scheme, and tried to delay repayments of National Insurance and VAT.

"However, in the absence of sufficient new work and increasing liabilities, the group exhausted all available sources of immediate funding and support," said the report. On March 25, its directors admitted defeat and Deloitte was called in.

The elastic had been stretched to breaking point. It became clear to Deloitte that keeping Jarvis trading to achieve a 'going concern' sale would be almost impossible.

The report into the group's two biggest subsidiaries, Jarvis Rail and Fastline plant hire, said "there was no funding available on appointment".

In order to continue contract work for NR, administrators needed the support of customers, external contractors and suppliers. Many were owed substantial sums and would only work if Deloitte could promise them payment – possibly more than 7m – was certain. Two staff payrolls were also due, together totalling 3.5m.

To fund this, Deloitte tried to persuade NR for another advance on work, but it could not be convinced, and on March 30, negotiations ceased. The next day, 1,159 redundancies were made across the group.

The scale of Jarvis's liabilities is enormous. Staff have been told they are now unlikely to get the 28.1m in wages, holiday pay and other benefits they are owed. Other trade creditors of rail and plant hire are unlikely to receive their 33.8m debts; HMRC is also unlikely to get its 19.7m, nor will shareholders receive any dividend.

Meanwhile the carve-up continues. The bulk of Jarvis's 30 rail maintenance contracts were for LNE route – commonly known as the East Coast Mainline – and have been transferred to Babcock. It is understood about 350 of the 1,200 rail jobs transferred across.

Commercial valuer Edward Symmons is conducting online auctions and private treaty sales for the group's "vast quantity" of surplus plant, machinery and equipment.

Among the items up for sale are two class 56 locomotives, which were fully rebuilt in 2005 at a cost of more than 700,000 each. The sale is expected to take two years.

Dry cleaning firm Johnson Service Group is also buying eight facilities management contracts and seven related companies employing about 250 staff for about 3m in cash.

But many former staff, who are still trying to find work, believe the company could have been rescued with Government and NR support. The RMT union argues a 19m rescue package could have kept the group trading.

"19m would have kept us all in work," said former employee Bill Rawcliffe. "It just doesn't make any sense what they have done to us."

Sale of subsidiaries

Administrators have sold two small Jarvis subsidiaries to their management as they continue to recoup assets for its lenders.

Deloitte sold Jarvis Training Management to its managing director Mike Bracegirdle and Shaun Cummings, managing director of its accommodation services arm for 100,000. The North West-based company trains in cleaning, support services, catering and business administration. Another firm, Somerford Equipment, was sold to management for 40,000. Cheshire-based Somer-ford, whose name has been changed to Seltd Realisations, employed 13 staff and makes, maintains and supplies parts for road marking vehicles.

Jarvis's lenders were consulted on both sales.