East London Liquor Co was “heavily insolvent” and an unviable acquisition target prior to its pre-pack sale to existing management in December 2023, according to its administrators.
Documents filed at Companies House by CG & Co revealed East London Liquor Co owed a total of £645,729 to 36 creditors, including £159,712 in PAYE and NI, £35,607 in alcohol duty and £100,000 to Barworks Limited.
Prior to the pre-pack sale, the administrators said several alternatives had been considered including: continuing to trade the business, applying for a moratorium under the insolvency act 1986, the sale of the business as a going concern by management or by the administrators, and liquidation.
As East London Liquor Co had already unsuccessfully sought to agree a “time-to-pay” arrangement with HMRC, continuing to trade was “not ‘cash-flow’ viable” CG & Co said.
Existing management and shareholders were “not prepared to continue to fund the company in its current position” it added.
A 29 November 2023 deadline set by HMRC to repay debts owed meant the sale of the business as a going concern by either existing management or administrators was also ruled out.
CG & Co said given the size of the company’s debt pile “it was considered there would be no third party interest” in acquiring the east London spirits company in its current state.
Liquidation, meanwhile, would have resulted in realisations being “significantly reduced” and the loss of 18 jobs.
The company and its assets were subsequently offered at a guide price of £300,000-£400,000 but only one bid was received.
Therefore, a deal was struck to sell the company to Berlin Trading Co in a pre-pack administration for a total of £220,000.
Alex Wolpert, East London Liquor Co’s founder, is the sole director of Berlin Trading Co. However, a total of six individuals – all of whom were shareholders in the purchased business – will own equity in the new company, which was incorporated in November 2023.
After deductions accounting for the costs of the administration, £87,444 was expected to be made available to preferential creditors, CG & Co said.
With secondary preferential creditors owed a total of £163,377, a shortfall of £75,933 was expected, it added.
No funds would be available to pay the £473,129 owed to unsecured creditors, including £40,416 owed to HSBC, £31,945 in employee NI contributions and the £100,000 owed to Barworks.
However, the London pub and bar group and four of its directors are among the individuals set to own shares in Berlin Trading Co.
Shareholders who invested in East London Liquor Co’s two previous crowdfunding rounds in 2018 and 2021 – which raised a total of more than £2.2m – have seen their ownership stakes eliminated.