Around 45,000 jobs at risk as government contractor goes into administration

The company holds crucial government contracts for a range of services in prisons, schools and hospitals and employs 45,000 UK staff.

Outsourcing giant Interserve has failed to secure investor backing for a rescue plan and is set to fall into administration, with lenders seizing control.

The failure of the company is likely to fuel the debate once again over the use of private sector contracts for public services.

The company holds crucial government contracts for a range of services in prisons, schools and hospitals and employs 45,000 UK staff.

Interserve said: ‘The board of directors of the company is convening an urgent board meeting to consider its options.

‘In the absence of any viable alternative, it expects to implement an alternative deleveraging transaction, which is likely to involve the company making an application for administration and, if the order is granted, the immediate sale of the company’s business and assets to a newly-incorporated company, to be owned by the existing lenders.’

The firm added that the administration and sale to its lenders is expected to be completed on Friday evening and the business will continue to operate ‘as normal for customers and suppliers’.

Shares will be suspended from trading on the London Stock Exchange immediately.

The company has lined up EY to carry out a pre-pack administration, after which the firm will fall into the hands of its creditors.

Lenders such as RBS, HSBC and BNP Paribas – together with Emerald Asset Management and Davidson Kempner Capital – are expected to seize control once the process is complete.

The pre-pack process will allow Interserve to avoid a Carillion-style collapse, to the relief of Government.

Under the rejected plan, aimed at slashing a near-£650 million debt mountain, the group had been proposing a debt-for-equity swap with its lenders that would have resulted in existing investors seeing their holding slashed to just 5%.

However, New York hedge fund Coltrane, Interserve’s largest shareholder with more than 27%, dismissed the plan, which was eventually rejected by over 59% of shareholders.

It had required the support of over 50% of shareholders to gain approval.

Interserve has been hampered by high debts, construction delays and a failed foray into the energy-from-waste market.

The GMB union said Interserve’s problems which follow Carillion’s failure last year, showed it was ‘time to turn the tide on the disastrous experiment’ of outsourcing public services, the BBC reported.

Kevin Brandstatter, the union’s national officer, said: ‘Ministers have learnt absolutely nothing from the Carillion fiasco and are hell-bent on outsourcing public sector contracts.

‘Shambolic mismanagement is putting jobs put on the line and services in jeopardy. Our public services can’t go on like this.’