Sheffield – LAWFUEL – The Law News Network – Creditors of Sheffield Forgemasters Engineering Ltd (SFEL) have approved the groundbreaking management buyout which will secure the jobs of 600 workers and protect their pensions.
At a meeting at Sheffield’s Hilton Hotel today (Tuesday) the deal was put to creditors who overwhelmingly (99.9 per cent) backed the complex refinancing package, paving the way for a new company Sheffield Forgemasters International Ltd to take ownership of the Brightside Lane-based business.
DLA Piper Rudnick Gray Cary (“DLA Piper”) has been advising the Forgemasters management buyout team, headed by managing director Dr Graham Honeyman.
Neil Thompson, Corporate Group partner who led the DLA Piper team, said: “This is one of the most rewarding jobs I have ever been involved in.
“Graham Honeyman and the management team have made a massive effort to preserve the jobs of over 600 highly skilled employees. They have kept a strategically important business going in South Yorkshire.
“The deal which they have done will ensure that all suppliers are paid in full. The pension rights of current and retired employees are also safeguarded. Without the hard work and strong personal commitment of the management team the business would have had to go into administration, and the outlook for the employees and suppliers would have been much worse.”
The buyout package is the result of three years of effort by the buyout team, advised by DLA Piper. SFEL, which is the largest design and manufacturing company of castings and forgings in the western world, has been up for sale since its parent group went into administration in 2003.
The company is profitable, having recorded operating profits of £2.5 million in the 12 months to the end of June, and the newly emerged business is poised to take advantage of a record order book. Demand for its high-tolerance products in key industries such as defence, nuclear, oil and gas exploration, power generation, marine and construction is booming.
But, administrators PricewaterhouseCoopers could not sell SFEL as a going concern because of its large pension fund and inter-company debt liabilities.
Those issues have now been resolved in a landmark deal, which also has the full backing of the workforce and trade unions.
A key element of the buyout package is the role of the new Pension Protection Fund (PPF), the statutory corporation set up in April under the Pensions Act to safeguard the pensions of workers in when there is a qualifying insolvency event.
The £120m pension fund for SFEL has a buy out deficit of approximately £65m, making it insolvent. Under the deal, the PPF in its role as contingent creditor has pursued its objective of maximising the return to the pension scheme has agreed to a cash amount that is more than it would be available in a liquidation and 26 per cent equity share in the new business going forward.
A new stakeholder pension scheme, in which the company matches employee contributions, has been established with immediate effect.
Neil added: “Sheffield Forgemasters is a long-standing client of our Sheffield office and we have been advising the company on this complex management buyout for well over a year.
“The issue of under-funded pension schemes is an obstacle to companies seeking new ownership. Both the administrators and the new owners recognised this and have worked with us to find an innovative solution, which not only protects the pensions of the retired, but gives continued employment and pensions to the company’s workforce. ”