Scott’s trucking staff made redundant as it goes into liquidation owing up to $50m

Despite talk buyers were lined up to salvage Australia’s biggest refrigerated logistics firm, it has been tipped into liquidation with debts that could top $50m.

Australia’s biggest refrigerated logistics company, Scott’s, is being liquidated, while its 1500 employees will lose their jobs after its receivers could not find a buyer.

Supermarkets have quickly activated contingency plans to minimise disruption to food deliveries from one of the largest corporate collapses of the post-pandemic era.

Coles – which accounted for 15 per cent of Scott’s business – was arranging other trucking companies to deliver food to its stores late on Friday. As was Aldi, which accounts for 3 per cent of Scott’s business.

“Our focus remains on continued availability of refrigerated products in stores and online for customers,” a Coles spokesman said.

“We are working quickly to transition to our other transport partners and are closely monitoring deliveries across our supply chain. We are working hard to minimise disruption for customers and our farmers and suppliers as deliveries ramp up.”

Scott’s services all major supermarkets, delivering food to Coles and Aldi directly, and on behalf of suppliers to Woolworths and IGA.

A Woolworths spokesman said: “We’re working closely with our impacted suppliers to maintain continued product to our distribution centres.”

Receiver KordaMentha told Scott’s employees late on Friday afternoon that they would be retrenched, with the business no longer to operate as a going concern.

Such is the dire state of the company’s finances that employee entitlements, which could top $50m, will be funded by the government redundancy scheme.

Scott’s fleet of 500 trucks and 24 cold storage warehouses will be sold. Receivers are in talks with potential buyers of these assets.

It was believed that the company could have been sold as a going concern, with three parties potentially interested in taking it over: Lindsay Fox’s Linfox, ASX-listed Lindsay and Toll Global.

But the company failed to attract a bidder to keep it as a going concern, with Toll Global, owned by private equity firm Allegro, and Linfox – which prides itself on its modern fleet – ruling themselves out of the contest.

An Aldi spokeswoman said the supermarket chain had hoped the “challenges facing Scott‘s could have been overcome, saving jobs and maintaining competition in the road freight industry”.

“Following the challenges presented this week from Scott’s Refrigerator Logistics, we have worked with our existing logistics partners to ensure the 3 per cent of Scott’s business managed for Aldi now transitions to other logistics partners,” the Aldi spokeswoman said.

“As we transition the volume, we will work to minimise any impact to Aldi customers with regard to product availability, and to ensure continuity of product collection from our valued supplier partners.”

The Aldi spokeswoman was also hopeful that Scott’s 1500 workers would find jobs quickly, given a talent shortage in the freight industry.

“Our thoughts are with the employees directly impacted. With our knowledge of the road freight industry, we are confident the high demand for talent in the logistics industry means the employability of Scott’s employees is extremely high.”

Scott’s biggest customers had agreed to help fund the company until a sale could be completed. But such was the size of the company’s earnings hole, that unless it found a buyer quickly, liquidation was the only option.

The company collapsed on Monday after its owner, Sydney private equity firm Anchorage Capital Partners, attempted to offload the business.

While assembling a data room for a potential sale last week, Anchorage discovered Scott’s finances were worse than anticipated, prompting it to place it in voluntary administration.

Scott’s secured creditors then quickly called in receivers, Melbourne insolvency firm KordaMentha, making it one of corporate Australia’s shortest administration periods.

Anchorage – which bought David Jones for $100m late last year – is known as a turnaround specialist. It bought an already distressed Scott’s in mid-2020 for the token price of $1 but assumed its debts totalling $75m.

Anchorage then loaned the company an extra $27m in two tranches last year, which was drawn down quickly. Scott’s also took out another $70m loan, secured against its fleet of 500 trucks, last August.

But the near $100m capital injection was not enough to save the company, the turnaround of which had been derailed by the Covid-19 pandemic, wild weather and a botched upgrade of its transport management system, which had an “adverse effect on operations for eight weeks”, according to its latest accounts.

The logistics sector operates on slim margins of around 3-5 per cent, making it vulnerable to disruption if it loses a truck from its network of suffers and outage from wild weather or technology.

In its accounts, Scott’s also made a near $1.1m provision on “onerous” or loss-making contracts.

Scott’s most recent financial report, lodged in December last year and covering the 16-month period to the end of June 2021, shows the company turned over more than $542m during that time, making a loss of $7.3m

The report says that the cash position of the company at the end of June 2021 and recent trading conditions, “have resulted in some risk as to the future cash flow of the consolidated entity being dependent on a combination of the following solutions’’.

The solutions were a combination of one or all of: additional borrowings from shareholders to meet short term working capital requirements; cost reductions and revenue increases through the company’s turnaround program; and continued availability of funding from shareholders and external finance providers.

“Notwithstanding the confidence of the directors, if the combined effect of the above solutions should not be wholly successful there is a material uncertainty that may cast doubt on the consolidated entity’s ability to continue as a going concern,’’ the report says.

Originally published as Scott’s trucking staff made redundant as it goes into liquidation owing up to $50m