A shortage of working capital caused by “poor” cost controls and “excessive overheads” at Tyneside Autobuy Limited spelled the end of the company, which closed earlier this year with the loss of 48 jobs.
The Gosforth-based used car supermarket, the biggest of its kind in the North East, had been heavily loss-making since 2010, despite a turnover of nearly £23m in 2014, a report from administrators shows.
Cost of sales had risen to £24.8m in 2014 following three years of loss-making trading.
Prior to its closure in July this year, Tyneside Autobuy Ltd had struggled to make payments to asset finance company Lombard, which had been providing a unit stocking facility.
As of July 22, when administrators from Duff & Phelps were appointed to the business, Tyneside Autobuy owed some £1.5m to Lombard.
Corporate finance specialists Duff & Phelps were brought in to prepare a short-term cash flow forecast for the business in June and found Tyneside Autobuy required a substantial working capital investment to continue.
Unable to raise the cash, the firm was marketed as a going concern but prospective buyers failed to make a deal with the landlords of Autobuy’s premises, Autoparc, and the business was subsequently placed into administration.
All but four of the 48 staff members, who were kept on for a period of wind-down, were made redundant immediately.
The business made a retained loss of £265,931 in the year to February 28, 2014, which the directors attributed to “poor day-to-day management of the business which resulted in a lack of control over the company’s cost base,” a report to creditors detailed.
Tyneside Autobuy’s last management accounts, made up to February 28 showed the firm had collected £1.2m in deposits from car buyers.
The administrators expect that funds will be available to cover an estimated £47,119 of preferential claims made by creditors, a significant portion of which will be employees’ claims.
However, the Creditor’s Report states that administrators anticipate a lack of funds to distribute to non-preferential creditors.
A statement issued by joint administrator Keith Marshall, issued at the time of appointment, said: “Regrettably, despite the best efforts of management and its funders, who supported the process, it was not possible to achieve a sale of the business as a going concern.
“The lack of interest was primarily due to challenging conditions in the used-car sector and the business’ historically weak trading performance.
“Our focus now is on dealing with ongoing customer queries in as sympathetic a manner as possible and expediting employee claims to ensure that redundancy payments are processed as quickly as possible.”
A statement within the Creditors Report said: “The poor controls over costs and excessive overheads meant that there was a significant shortage of working capital within the business and the lending facilities were exhausted in order to fund three years of consecutive losses.
“Since incorporation retained losses recorded on the balance sheet totalled approximately £13m and cash flow was severely strained as a result.”
The administrators said a meeting of the creditors would not take place given there is believed to be insufficient property to make a distribution to non-preferential creditors.