Dairy farmers who were not paid for six weeks’ worth of milk by collapsed processor Tomlinson’s Dairies will receive little to no cash from the firm’s administrators.
Farmers, who number among the unsecured creditors, are set to receive 0-3p for each £1 owed according to documents filed with Companies House.
Money arising from the disposal of assets will first go towards employees’ unpaid wages (preferential creditors) and outstanding bank loans (secured creditors).
HSBC is owed £15.6m and Finance Wales Investments, an arm of the Development Bank of Wales, is due £1.8m.
Administrators Michael Denny and Peter Dickens of PricewaterhouseCooper said: “Based on the information currently available we anticipate that secured creditors will not be repaid in full.
“Sufficient funds will be available to pay the preferential creditors in full and there will only be a prescribed part dividend to unsecured creditors.”
70 farmers owed cash
Of the 120 farmers who supplied the Wrexham-based milk buyer, around 70 are owed for milk supplied in the six weeks prior to the firm ceasing to accept milk on 12 October.
These are a mixture of non-aligned farmers and those who were aligned to Sainsbury’s.
Farmers Weekly understands that Sainsbury’s suppliers were told by the supermarket on Friday (13 December) that it will not be paying them directly for the milk either, but they have been offered interest-free loans to assist them with cashflow difficulties.
The retailer is resisting compensating farmers for what they are owed as it has already paid Tomlinson’s for the milk.
Sainsbury’s refused to comment, saying relationships with its suppliers are confidential.
Why did Tomlinson’s fail?
Tomlinson’s Dairies failed to adequately manage a rapid expansion attempt after successfully tendering for a three-year contract to supply Sainsbury’s stores in Wales and parts of England with milk. Administrators Michael Denny and Peter Dickens said the contract required it to double its size to be able to process a total of 200 million litres of milk a year.
It added additional processing and storage capacity funded by a mixture of debt, equipment finance, grant funding from the Welsh government, and equity. However, having won the contract, it made significant trading losses in the subsequent two years, losing an estimated £4.3m in 2018 and £2.7m in 2019, according to draft audited accounts.
A cash injection of £2.3m from the sale of its blow-moulding operation in May 2019 provided some temporary respite but this was overtaken by increased costs arising from energy prices and plastic bottles. A fall in demand for milk during the spring flush saw it having to dispose of surplus milk, while also suffering lower than expected prices for cream.