A leather retailer trading since the 1960s has been saved from possible collapse after one of its directors acquired the firm in a pre-pack purchase deal.
The major assets of the Cumbrian-based firm, which was trading as Lakeland Leather up until June 13 this year, were bought by the newly-created company Felldale. The deal has secured the jobs of workers at the firm.
Lakeland Leather, though profitable for many years, was facing debts amounting to a total of £4.6m with its creditors. Under the new deal, the secured creditors will now be repaid in full, with payments set to start in September. Unsecured creditors, however, will only receive a quarter of the £3.2m outstanding.
The new company has been created by Martin Foster, who only joined the Ambleside retailer earlier this year. The sole director and shareholder of Felldale, it is understood that Foster will work with another director of Lakeland, Richard Standring, in the new firm.
Incorporated in 1992, Lakeland had been returning profitable accounts for many years. At the time it entered administration, it sold from 22 stores across the North West of England.
In 2009, the firm recorded a loss for the year to January, returning to profit a year later. Recent years, however, have seen a return to consistent losses.
Earlier this year the firm also defaulted on a ‘Time to Pay’ agreement it had in place with Revenue & Customs, according to Insider Media. A thorough examination of the Lakeland books then forecast a cash shortfall.
On the back of the findings, Foster said he was willing to buy the firm under a pre-pack deal. Other options discussed included sourcing strategic investment, if the accounts had allowed this to be a successful venture.
The failure of Lakeland shows the speed at which profitable companies in the UK can face trouble, and should serve as a warning to other small companies in the country to ensure their accounts are well managed and kept on top of.
Many are increasingly doing this through engagement with independent outsourced accounting services, thus allowing them to direct their resources towards other business matters.
The Lakeland example also shows the importance of accurate and proactive forecasting; another area in which outsourcing finance operations can pay off. Without this, companies may not be able to identify a problem in time for a rescue deal to be put in place.
In well-run firms, accurate forecasting and other efforts by a professional team of accountants can increase profit. It can also promote better decision-making, empower opportunities to be better taken advantage of and fuel mergers and acquisitions in competitive markets.