Amtrak collapse unravelled

A breakdown of the dramatic events following parcel carrier Amtrak's collapse on 22 August have been revealed for the first time by the firm's administrators. As Motor Transport reported last week (MT 13 November), the West Midlands-based operation racked up a total deficiency of almost £35m. However, the full details of its collapse have not been published before.
They highlight a catalogue of chaos and mistrust statements such as: "It was established that parcels within these depots could be held to ransom given the administration and amounts owed to these parties" and "On the evening of 22 August 2008, 10 trailers were being held containing approximately 2,500 parcels… A ransom payment of £44,000 had to be made to release these parcels."
Clearly depots were angry at the collapse and the slim prospect of receiving the money they were owed. However, at that stage, the reasons for the failure of the business – formerly seen as a company offering high levels of customer service in a notoriously difficult sector – were not known.
How it began
The administrators trace the problems back to August 2005 when Amtrak Express Parcels (AEP) acquired the business and assets of another failed parcel carrier, Nightspeed Services. Unfortunately this acquisition, coupled with a difficult trading environment, eventually caused the administration of AEP in January 2007.

Netfold, a business set up by a number of business turnaround and parcel industry specialists, then came on the scene. It bought the business and assets of AEP and continued to use the Amtrak name. The new management team had a turnaround plan in place and arranged finance to support this following what the report calls "a very limited period of due diligence".
Netfold immediately rationalised the operation with management functions transferred to the company's Aldridge, West Midlands hub, from its former Bristol headquarters. However, it maintained Amtrak's network of two hubs in Aldridge and Warrington, Cheshire, plus a depot network of 51 sites, split between 27 owned depots, eight franchise depots and 16 subcontract depots.

Streamlining
Netfold's turnaround plan involved reducing the cost base through rationalising the depot network and trunking routes, investing in new vehicles and IT and improving customer service levels. However, this was not without cost, as the administrators note: "The plan anticipated significant losses in 2007 and arrangements to fund these losses were put in place."
As it turned out, those losses were accurately forecasted: management accounts show that in the 19 weeks from January to May 2007, Netfold made a post-tax loss of £8.6m and racked up net liabilities of £8.5m. The following 12 months ending 31 May 2008 were no better: a turnover of £57.2m was converted into a £15.3m loss with net liabilities increasing to £23.9m.
The administrators claim that the firm was due to show an improved performance during the first half of 2008, although as the above figures demonstrate, this did not materialise. The report adds: "However, a combination of customer losses, weaker volumes as the market contracted and ongoing price competition meant that losses continued to be incurred."

Fixing the problem
All that was potentially manageable, and the firm came up with a revised turnaround plan, although this meant that break-even would not be achieved until 2009. Unfortunately the plan hit a wall when the company looked for more funding: "… the management team approached their main funder for ongoing support for the remainder of 2008 and 2009."
The lender declined to offer support and, as a result, the management team attempted to sell the business to direct competitors. It adds: "Once it became clear that this would not be achievable, the directors took steps to appoint the administrators."
Once appointed, the administrators – Ian Best and Tom Lukic from Ernst & Young – looked to sell the business as a going concern. However they say that high potential costs and inevitable customer losses would have made such a deal impossible. Instead, the best they could do was to sell Amtrak's customer database to Business Post for £90,000. The deal also meant that Business Post had to deliver all the parcels remaining in Amtrak's network.

Held to ransom
However, this was easier said than done in some cases, with franchisees and subcontractors holding parcels in order to force 'ransom' payments. Although around 300 were released following legal advice, the report adds: "There are currently [as of 15 October] still c[irca] 500 parcels being held to ransom." Some were also held on the night of 22 August and a ransom payment of £44,000 was paid to secure their release.
In all, Business Post delivered around 22,000 parcels in the week starting 26 August, but inevitably some could not be delivered and around 150 packages remain at Amtrak's Aldridge hub, it says.
How much did it owe?
Trade debts amount to around £1.1m, but creditors are unlikely to receive any dividend as the report glumly concludes: "Given the level of indebtedness due to the secured lenders, there will be insufficient funds to repay the secured creditors in full. "Consequently, there will be a shortfall to secured creditors and no distribution to unsecured creditors."