Case Study

EOM Electrical Contractors Ltd

Background

This privately owned company had been trading for over 20 years in Mid-Wales installing domestic and industrial electrical systems. The company had encountered trading difficulties because of the recession and had been placed in voluntary liquidation by the owner. He had contacted the local enterprise centre who then advised him to contact the Wales Co-operative Development and Training Centre for specialist advice. The Co-operative Centre was then invited by the owner to meet the workforce to see whether they would be interested in buying the company from the Receiver.

The options

The workforce had been reduced to nine employees who were concerned at losing their jobs in a rural area of high unemployment. Their main concern at the initial meeting was in receiving redundancy payments from the receiver and there seemed little enthusiasm in buying the company.

The Co-operative Centre promised to investigate the redundancy situation and to report back after further discussions with the owner and the Receiver.

Meetings were held every week with the whole workforce.

The process

The existing owner was willing to provide detailed management accounts and this enabled the Co-operative Centre to prepare detailed cash flow forecasts for the new company. These figures were then presented to the workforce for comment. It became clear over a number of meetings that any new company could be profitable provided that a reasonable deal could be negotiated with the Receiver. The workforce began to be more interested in investing in the new company, provided they could collectively own it. The existing Contracts Manager, who knew the customers very well, was also enthusiastic and began to provide leadership to the others.

The raising of the finance

The Co-operative Centre led the workforce in making a successful offer for the stock, vehicles and equipment and contracts. This was financed by each member investing £3,000, a loan from the Midland Bank together with an overdraft facility and a grant of £3,000 from the local development Board. The workforce were told that because they had bought the company and had begun trading without a two week break they might not receive redundancy payments from the state. They still took the risk and, six months later, did receive their state redundancy payments.

After the conversion

Three years later they have now expanded to a company with 20 members and, through the Co-operative Centre, have installed a Profit Sharing Trust so that the employees can receive free shares in the company.