Thu 22nd Sep 2016 - Red Hot collapse triggered by dropping sales and negative PR, Risk to lose £9.9m Red Hot collapse triggered by dropping sales and negative PR, Risk to lose £9.9m: Red Hot World Buffet fell into administration after suffering from declining sales and negative PR attention due to employment tribunal claims brought by former employees as well as court proceedings arising from the discovery of rodents at its Liverpool site, administrators have reported. Buffet Restaurants, the group holding company of the Red Hot World Buffet business, appointed insolvency specialists to its subsidiaries in the summer of 2016. Buffet Restaurants’ subsidiaries Passepartout’s and Helen’s Cuisines both entered administration on 26 July 2016, with Russell Cash and Ben Woolrych of FRP Advisory appointed joint administrators. Passepartout’s traded from premises in Manchester, Liverpool, Leeds and Leicester, while Helen’s Cuisines traded from premises in Cardiff. The two companies, which underwent a management buyout led by private equity firm Risk Capital Partners in 2013, employed a combined 370 members of staff. In the year to 31 January 2015, Passepartout’s reported a turnover of £13.3m and pre-tax losses of £27,000, while Helen’s Cuisines reported a turnover of £8.3m and pre-tax losses of £1.3m. There were several reasons why the business ran into financial difficulties, according to a report filed by administrators. The report stated: “Red Hot World Buffet began to suffer from declining sales in FY2015. In addition to this, the Liverpool premises suffered negative PR attention due to exceptional events such as employment tribunals claims brought by former employees and court proceedings as a result of an environmental health organisation visit to the Liverpool restaurant during which rodents were found. The subsequent reduction in sales significantly impacted the companies’ cash flow, which ultimately resulted in a build-up of rent arrears and breaches of suppliers’ credit terms.” In addition, the documents reveal that the trading performance at all five restaurants was below the levels achieved in previous years. And they indicate that while the sites in Manchester, Leeds and Cardiff were generating an acceptable level of sales, the performance in Liverpool and Leicester was significantly worse. FRP Advisory reported that a number of offers were made for the Liverpool restaurant but all were subsequently withdrawn, while no offers were forthcoming for the Leicester restaurant. As a result, the administrators closed both the Liverpool and Leicester sites and made all employees redundant on 26 July 2016, the day that they were appointed. However, buyers were found for the other three restaurants. The Cardiff restaurant was sold to Bluewood Investment trading as JRC for a total of £227,000 on 26 July, the Leeds restaurant was sold to Chopstix Middlesbrough for a total of £300,000 on 29 July, and the Manchester restaurant was sold to Mighty Rhino for a total of £434,328 on 5 August. Barclays and Risk Capital Partners are the secured creditors of Passepartout’s and Helen’s Cuisines. Barclays is owed £1.7m and there is expected to be a distribution made under its fixed charge, although the bank is still likely to suffer a significant shortfall. And Risk Capital Partners is owed £9.9m, but the documents suggest that there are insufficient funds to enable a distribution to the private equity firm. Meanwhile, preferential creditor claims are estimated at £150,000 relating to pay arrears, pension contributions and holiday pay. The administrators expect that there will not be enough funds available to make a distribution to these creditors. And the value of claims from unsecured creditors in Passepartout’s and Helen’s Cuisines is set at £1.2m and £108,863 respectively. It is not expected that there will be sufficient funds to make a distribution to unsecured creditors.