However, former government-backed body WRAP, which has been registered as a charity since December 8 2014 – three days before ECO Plastics’ administrators were appointed – has concluded an equity arrangement with the new investor Aurelius, which acquired ECO Plastics’ business and assets last month (see letsrecycle.com story).
ECO Plastics’ £15 million Hemswell bottle recycling plant – described as the largest of its kind in Europe – was hit by a major fire in 2009, but it reopened the following year and received investment from Coca Cola Enterprises (CCE) as well as a £1.15 million loan from WRAP.
Further loan money has also since been provided to ECO Plastics, a WRAP spokesman said, taking the total to £1.65 million.
A WRAP spokesman said: “WRAP has provided a subordinated loan of £1.65m to ECO Plastics. As a result of the ECO Plastics pre-pack administration, WRAP will be writing off its loan in full. WRAP has concluded an equity arrangement with the new investor, the terms of which are confidential.”
The revelation from WRAP today follows the announcement on Friday (January 9) that ECO Plastics’ founder and deputy chairman, Jonathan Short, has stepped down as chairman of the Resource Association “to focus on his existing business interests”.
RA chief executive Ray Georgeson expressed his disappointment that Mr Short was leaving and praised his “time, hard-work and support”. RA board member and DS Smith’s business development manager, Peter Clayson, has taken over as acting RA chairman until the next AGM in May.
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Coca-Cola Enterprises
Administrators’ documents reveal that ECO Plastics made a loss of nearly £12.5 million in the two years leading up to the sale of its business to investor Aurelius last month – losing £5 million in the year up to December 29 2013, and additional £7.5 million in the following 11 months to November 30 2014.
According to administrator Grant Thornton’s report, in view of a reduction in forecast demand from CCE (Coca Cola Enterprises), a fall in commodity market prices and PRN prices, and a ‘tightening on the working capital position’, it undertook reviews of the viability of ECO Plastics’ business.
After these reviews, the report states, it ‘became evident that the financial position had deteriorated and that without significant additional funding was not viable in its current form’.
When asked by letsrecycle.com why CCE was expecting a drop in its demand for product from ECO Plastics last year, a spokesperson for the drinks manufacturer sad he was “not able to provide a response to your enquiry at this time”.
CCE has now left the Continuum Recycling joint venture with ECO Plastics for the supply of all 25% recycled content in its UK drinks bottles. Instead, it has entered into a long term agreement with new investor Aurelius to source rPET for its bottle manufacturing process.
According to the report, Aurelius acquired ECO Plastics’ shares in Continuum – of which it held 66% – for £1 and adopted a £5 million debt due from ECO Plastics to Continuum.
Sale
In light of ECO Plastics’ struggles, the business was placed into pre-pack administration last month, allowing the business to continue at the firm while a plan and contract was drawn up for its sale, but this meant creditors did not have the option of presenting a winding-up petition if they had chosen to do so.
Aurelius then acquired ECO Plastics’ staff, business and assets for £3.56 million after the pre-pack arrangement and moved them under the control of a new firm it has set up by the name Plastics ECO (see letsrecycle.com story).
And, although David Riley and Joseph McLean of Grant Thornton LLP were officially appointed administrators of ECO Plastics on December 11 2014, their report shows that Grant Thornton LLP was “initially introduced” to ECO Plastics on August 14 – four months before the Aurelius acquisition.
A number of creditors have contacted letsrecycle.com since the pre-pack move was announced to voice their concern at the losses they face as a result of the failure of ECO Plastics, feeling they should have been made aware earlier in 2014 of the pressures the business was under. Others have spoken of how they committed to supporting the business which had backing from the Waste & Resources Action Programme (WRAP) and Coca Cola Enterprises (CCE).
According to the Grant Thornton report, Aurelius’ offer to purchase ECO Plastics included a sale of the debtors, thereby ‘avoiding collection costs and uncertainty of outcome’, as well as retaining more than 210 employees.
Other offers were received to acquire the business in its entirety on a solvent basis, but ECO Plastics’ primary shareholder of 46%, Ludgate Environmental Fund, failed to reach an agreement on this.
As a result, the document states: ‘The Aurelius offer represented the best outcome that preserved jobs, maximised the outcome for the stakeholders and provided continuity for the customers and suppliers’.
The administrators add: “We are of the opinion that the sales price is the best that was reasonably obtainable in all the circumstances.”
Creditors
Meanwhile, administrators of ECO Plastics are currently contacting creditors and drawing up proposals for how the company’s debts will be managed.
It is not yet known how much ECO Plastics owes to creditors, but the administrators’ report lists secured creditors as Close Leasing Ltd (CLL) and Close Brothers Invoice Finance Ltd (CBIF), which both first introduced Grant Thornton LLP to the firm and consented to the Aurelius transaction.
Close Leasing Ltd provided plant machinery to ECO Plastics under a hire purchase arrangement. After administration, this agreement was terminated and the plant machinery was acquired for Plastics ECO Ltd for £7.9 million.
As the owner of ECO Plastics’ book debts, Close Brothers Invoice Finance received £2.96 million of the £3.56 million paid for the ECO Plastics’ business. Close Brothers Invoice Finance provided ‘invoice discounting facilities’ to the company and its Continuum Recycling Ltd joint venture with Coca Cola Enterprises Ltd.
However, the administrators’ report states: ‘We conclude that there would not be a surplus available for unsecured creditors from realisations in respect of the book debts and plant and equipment subject to CLL/CBIF security, in any reasonable circumstance.’
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