Administrators’ report reveals Merit reached overdraft limit two months before collapse, requiring £500,000 temporary increase to pay staff
Contract disputes and project delays helped send an offsite specialist that once had plans to be a £450m turnover business into administration last November.
An update from administrator Interpath Advisory filed at Companies said Merit Holdings “experienced cash flow pressures largely due to delays in the commencement of large projects and disputes over contract variations with certain key customers”.
It added: “In an effort to improve the cash position, the Group pursued a settlement agreement on contract variations with a key customer, however an agreement was not reached.”
The report also revealed that Northumberland-based Merit was forced to get a temporary overdraft increase of £500,000 from its bank, Santander, to help meet its payroll obligations, having reached its overdraft limit in September last year.
In the update, Interpath said secured creditor Santander was owed £13m and “will recover a proportion of its indebtedness”.
All 284 Merit Holdings employees were made redundant when the firm went into administration and Interpath said they would be able to claim up to £800 to cover missing holiday pay and wages.
But unsecured creditors have been told it is “unlikely” they will get any of their £17.4m in unpaid bills back while HMRC, owed £537,000, has been told it is “uncertain” whether it will get any of the money it is owed back.
The report said that after “explor[ing] options for the sale of business and assets”, Interpath completed a “substantial disposal of certain assets of the Group” to a company called Merit Industrialised Construction for £396,000 just before Christmas.
According to Companies House records, the firm was set up on 13 November last year.
Merit, which specialised in the healthcare, life sciences and education sectors, worked out of a 270,000sq ft offsite manufacturing facility in Cramlington, with the firm looking at expanding the site by a further 250,000sq ft as part of a long-term plan to get annual turnover up to £450m.
Merit was set up in 2002 by Tony Wells and in an interview with Building in 2024 said he “dislike[d] retentions and bonds” calling them “archaic behaviours rooted in client expectations”.
As well as Merit Holdings, Interpath was also appointed administrator for Merit’s other main trading businesses, Merit Group Services Limited and Merit Health Limited.
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