Unsecured creditors of North Brewing are set to miss out on more than £1.7m after the Leeds craft brewery was sold in a £225,000 pre-pack administration last month.
Administration documents published by Interpath revealed North Brewing owed trade creditors almost £1.2m, as well as an additional £543,341 to HMRC in beer duty that was “highly unlikely” to be repaid.
It was also uncertain whether a further £429,457 owed in PAYE income tax and VAT to HMRC under a “time to pay” agreement would be paid.
North’s secured creditors Natwest and Bibby – owed £265,344 and £263,250 respectively – could also see a shortfall, joint administrators Howard Smith and Richard Harrison said.
In the case of NatWest, this was expected to be “significant”, they added.
North Brewing, North Brewing Leisure and North Brewing Management were sold to Vertical Drinks Limited and Kirkstall Brewery on 25 January 2024 for a total of £225,000.
The administrators said they had proceeded with the pre-pack sale as “no solvent options were available,” and other insolvent options “were not expected to deliver a better outcome for the company’s creditors”.
Like many other hospitality businesses, “Covid-19 had a materially adverse impact” on North’s financial performance, the administrators said. Hence, North had “sought to utilise government support schemes to meet its liquidity requirements, as well extending the terms on its asset finance agreements”.
In May 2020, the business received Covid-19 business interruption loans from NatWest totalling circa £800,000, which when combined with asset financing of £700,000 also raised in 2020 resulted in North having “a proportionally high debt burden”.
Since 2022, North had also suffered from rising costs including those linked to energy, labour and raw materials, leading its gross profit margins to fall from 50.1% to 48.2% in the 12 months ended 31 March 2023.
Hence, the company continued to be loss-making, recording an EBITDA loss of approximately £300,000 despite increasing its revenues by 10.7% to £5.9m.
Interpath was engaged by North on 6 December 2023 after directors identified a potential cash requirement of approximately £600,000 by spring 2024, dependent on Christmas trading.
Following the Christmas period, North’s directors requested Interpath assist in finding a buyer for the business. Given growing creditor pressure and “limited possibility of realising solvent investment”, a notice of intention to appointment administrators was filed on 15 January 2024.
After a period of negotiation, just one offer remained for the business and certain assets on an insolvent basis.
North was therefore placed into administration and it and a portion of its assets were sold immediately to Vertical Drinks. A sale of the company’s beer stock also completed to Kirkstall Brewery on this date.
Kirkstall Brewery’s founder Steve Holt is also the director of Vertical Drinks.
North Brewing was founded by Christian Townsley and John Gyngell in Leeds in 2015. Its beers are stocked nationally with Asda, Morrisons and Tesco.
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