Poultry company?s slow demise
Date: 02-10-2006
Source: The Sunday Business Post
Last Monday morning, long before most of the 300 staff arrived for work at Castlemahon Food Products, the four directors of the company gathered at a specially convened board meeting at the firm?s headquarters in Newcastle West, Co Limerick. It was the latest in a series of conferences between the four men. For the past month, they had been assessing the financial position of the ?80 million poultry company on an almost daily basis. The company was struggling to curb mounting losses and its bank had withdrawn support. Various rescue plans had been implemented, but none were successful and the company continued haemorrhaging cash. The firm could no longer afford to meet its debts and the four directors had spent much of September trying to secure its future. However, last Monday, they finally realised that they had come to the end of the road. During the meeting, a motion was passed unanimously to ask the High Court to wind up the firm. The rest of the day was spent briefing solicitors, accountants and senior management. The following morning, Castlemahon?s legal team made their petition during a special sitting of the High Court in Dublin. After listening to the facts of the case, Ms Justice Dunne appointed Kieran Wallace, a corporate recovery partner with KPMG, as provisional liquidator. The court was told the company had amassed losses of almost ?19.27 million over the last five years, including a loss of ?5.7 million last year. The company, it was said, had debts of ?14.9 million. The Sunday Business Post has since learned that the figure has been readjusted to more than ?20 million. Of that, about ?16 million is owed to the Castlemahon?s parent company, the O?Kane Group, an Antrim-based food group. The remaining ?4 million is owned to the company?s suppliers and trade creditors. Within hours of the petition, Wallace and his team had arrived at Castlemahon?s Limerick base. Meetings were held later that day with staff, suppliers and growers. More than 100 local chicken producers supply exclusively to Castlemahon, and all will be out of business if the company closes its doors. Castlemahon is still continuing to trade while Wallace assesses the company. Top of his agenda is finding a buyer. A decision on how long the company will remain trading will be made early this week. If no buyer is found, the company will be shut down with the loss of 300 jobs and its assets will be offloaded to pay debts. The company is back in court on October 23, when a petition will be heard to have the company placed into official liquidation. The collapse of Castlemahon Food Products is one of the largest insolvencies in the past two years. While most people in the industry knew the company was teetering on the brink, few realised the scale of the debts it had amassed. New court affidavits filed by Michael Donoghue, an Antrim businessman and a director of Castlemahon, provide an in-depth chronology of events leading to last week?s courtroom action. The affidavits - obtained by this newspaper - reveal that two directors of the company resigned in May, just months after the bank cut off support. They show that the directors tried to sell the company in the months leading up to the appointment of the provisional liquidator. They state that the company had unlimited status, and, as such, its shareholders are personally liable for meeting the company?s debts. The O?Kane Group has said that it intends to write off the inter-company loans, meaning Castlemahon is only exposed to the ?4 million owed to suppliers. O?Kane Poultry acquired a small operation in Limerick in 1984 and quickly renamed it Castlemahon Food Products. It subsequently converted to a private unlimited company in 1991. The O?Kane Group has extensive interests on both sides of the border and has contracts across Britain. The Castlemahon company has a feed mill, a hatchery and a processing plant. In addition, the company is supported by 18 broiler breeder sites and 60 broiler growing sites,12 of which are dual purpose chicken and turkey. The company produces a full range of poultry products - fresh and frozen - for the retail market. According to Donoghue, the ??company operates in an extremely competitive market and has traded at a loss for a number of years??. Over the past five years, Donoghue said that the company had been subsidised by its parent company. He said this was the only reason why the firm could pay its debts and continue to trade. In recent years, he said a number of attempts had been made to restructure the company and make it profitable. Donoghue said: ??One of the core problems faced by the company is that its wage rates are significantly higher than market rates and having regard to the competitive market in which it operates, the company has suffered from a lack of competitiveness. ??In order to address this, the company prepared a rescue plan following extensive discussions with farmers and unions facilitated by the Labour Relations Commission. ?However, regrettably this plan could not be implemented.? The plan Donoghue was referring to was announced in February last year and involved laying off 150 staff. At the time it emerged that staff only learned of the restructuring programme on local radio. However, even these redundancies were not enough. Early this year, the company?s bank served notice that it was withdrawing facilities from the company effective from July. A review of Castlemahon?s operations was prepared and submitted to the board of the O?Kane Group. ??The plan showed that the company was borderline breakeven at best and would require significant investment to achieve even that position,? said Donoghue in his affidavit. ??However, the group were prepared to support the plan subject to securing an alternative banking arrangement, and the group approached the company?s bankers to extend their deadline to allow time to refinance the business with another lender, which they did.? The group then approached another lender, who quickly declined after conducting a review of the business. Indeed, that lender even went to far as to advise against the group subsidising the Castlemahon subsidiary. Last May, Pat Mulvehill, the firm?s managing director, tendered his resignation, as did another director Tadhg O?Shea. These resignations have yet to be lodged with the Companies Registration Office. With no bank willing to support Castlemahon, the remaining management at the company tried to secure a trade sale of the business. In order to sweeten the deal, the O?Kane Group agreed to write off the inter-company loans that it had provided to Castlemahon. These totalled ?12 million. ??However, despite its best efforts, the company had been unable to find a buyer for the business,? said Donoghue. As such, he said the company could no longer pay its debts and was left with no alternative but to petition the court to wind it up. Donoghue said that one of his main concerns was the welfare of it poultry livestock. The company and the farmers who supply it have about 1.1 million live birds at various stages of development which need to be fed on a daily basis. Donoghue said in his affidavit: ??The company is concerned that without the appointment of a provisional liquidator, the feeding of the birds can not be guaranteed and they may suffer distress and/or may die as a result.? According to sources close to the company, Castlemahon?s failure to secure alternative banking facilities was the final straw for the O?Kane Group. The parent company had pumped millions into its Limerick subsidiary, but Castlemahon had struggled for the best part of a decade. The company was not helped by the fact that the O?Kane Group itself had laboured to breakeven in recent years. According to its most recent accounts, O?Kane Poultry had sales of stg£98.3 million for the year ending April 30, 2005, but made a profit of just stg£368,000. This was a significant improvement on 2004 when the company made a loss of stg£241,000 from sales of stg£92 million. And it is not the only Irish poultry company feeling the pinch. In recent years, a number of poultry operations have closed down, including Monaghan Poultry, while a number have also laid off staff. There are just three main poultry processors in the Republic - Cartons (Shercock, Co Cavan),Western Brand (Ballyhaunis, Co Mayo) and O?Connor?s (Cappaquinn, Co Waterford). Grove Turkeys, part of the Kerry Group, is the country?s major turkey processor while Silver Hill, based in Emyvale, Co Monaghan, is Ireland?s main duck producer. Many of the Irish players have been squeezed out by foreign importers. Ireland imports 56,000 tonnes of poultry each year, mainly from Thailand, Brazil and EU countries. In addition, Ireland imports fresh poultry from Britain, Belgium and the Netherlands. ??There is simply no money in chickens,? said one leading accountant. ??The turnover is high but the margins are very, very small. It is a risky business.? It is a risk that the 300 staff and 50 suppliers at Castlemahon Food Products hope someone will be willing to take.
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