How we respond to a sudden company closure

Our assistant head of risk underwriting, Kieron Franks shares the steps we took to protect our customers following the collapse of major meat supplier firm, Russell Hume.

Tuesday night is steak night at Wetherspoon’s. So, when meat supplier Russell Hume was caught up in a food safety scare in January this year, it left 100,000 valued customers with empty plates. Suddenly, there was no sirloin, rump, gammon or mixed grill. Not even a skinny steak.

Alongside many other affected firms, the chairman of JD Wetherspoon, Tim Martin, instantly found his cashflow and his reputation under threat. With steak being the most popular dish on the menu, the decision to stop serving from Tuesday 23 January was a tough but essential one. Our assistant head of risk underwriting Kieron Franks explains how Euler Hermes can help during sudden company collapses such as this.

The story began 11 days earlier when Food Standards Agency (FSA) officers made an unannounced visit to Russell Hume’s Birmingham site and discovered serious failings in hygiene and food safety. As a result, the FSA closed down all sites. The Derby-based firm – which had operated successfully from six locations, employed around 300 people and had an annual turnover of more than £50 million – was in trouble.

According to Kieron, it’s one of only two cases he can recall that have taken him by surprise. “It came as a shock to everyone. It’s very hard for our customers to predict which client will default on payment. In fact, almost half of all payment defaults come from companies where there is a stable and long-term trade relationship.”

“FSA visits occur all the time but shutting down production was unexpected. This makes it a perfect example of when credit insurance pays off – we’re here for the unexpected and the unforeseen.”

The failure of Russell Hume threatened to leave many other nationwide companies vulnerable – from Jamie’s Italian to Hilton Hotels. “Our customers who worked with Russell Hume faced a significant challenge,” says Kieron. “Given the size of their contracts, we had a credit analyst monitoring the company on a regular basis and when the news broke we reacted quickly.”

The first step was to contact the company to find out the extent of the problems. The firm had ceased all production, was unable to generate any cash and – at least in the short term – was unable to make any payments to creditors.

We then reached out to all our customers that had a cover in place to discuss the situation and their options. “We made it clear that they would be covered for what was delivered up until the day of cancellation", says Kieron.
We let them know that given the closure of the business, we would be unable to continue with cover.”

With the Russell Hume closure hitting national news, more of our customers became aware and were understanding of our process. Our quick and personal response was key to protecting our customers from further fallout. By this stage, FSA chief executive Jason Feeney had described the inadequacy of Russell Hume’s food safety management as “systemic and widespread” and the directors of the meat suppliers had taken the decision to place the firm into administration.

Some things are difficult to forecast, but this shows that our combination of renowned economic intelligence, market knowledge, expertise in risk analysis and our well-established industry network, can help customers even during the most uncertain of times.

Kieron notes that we have since drawn on our intelligence from the fall of Conviviality, which had been valued by the stock market at close to £750 million in November 2017. As the Guardian reported in April this year, the drinks supplier, whose brands included Bargain Booze, “will be remembered as one of the quickest corporate collapses ever seen in the UK”.

“Even with Conviviality, we knew that the company was being slow in making payments and wasn’t responding to communications, so it’s extremely rare that we are taken by surprise,” says Kieron.

He expects to see more insolvencies in the coming months and as a company we are forecasting an increase of 8% in the UK during 2018. This follows an increase of 21% in large insolvencies during 2017, with significant rises in the services, retail, agrifood and construction sectors (Source: Insolvencies expected to rise in the UK and China in 2018).

Since the beginning of the year, the list of UK insolvencies has been growing longer by the month – Carillion, Toys R Us, Maplin… “It’s possible that this is why we are seeing a lot more people looking at credit insurance,” says Kieron. “Business collapses like Russell Hume raise the profile of the work we do and some of our customers received a very large payout as a result.

“It’s a timely reminder that credit insurance is also there to protect and empower, not just to avoid the risk of failure.”