This article is more than 1 year old

This article is more than 1 year old

The government has raised objections to a rescue plan designed to stave off a Carillion-style collapse at Interserve, the contractor whose public sector contracts include hospital cleaning and serving school meals.

Lenders to the company, which employs 45,000 people in the UK, are trying to thrash out the terms of a plan under which they would agree to cancel nearly half of the company’s £807m net debt for shares in the company and effectively take control of it.

But the government is understood to have advised against a key component of the plan that would involve ringfencing its most profitable division, construction industry supplier RMD Kwikform.

A government source admitted that the government had advised against the plan but denied that the Cabinet Office had blocked it either explicitly or by warning that the proposal would lead to an end to new government contracts.

Quick guide Who are Interserve and what do they do? Show Hide Interserve has a vast number of public sector contracts in the UK in areas such as school meals, hospital cleaning and probation services. It has also worked on road projects on the M5, maintains some of Britain’s busiest railway stations, and cleans more than 2,000 London Underground carriages every evening. Interserve in numbers 45,000 Number of UK employees 700 The number of schools where it provides catering services 40,000 The number of medium- to low-risk offenders on probation that Interserve supervises 150 The number of BBC sites, including Salford Media City, where Interserve provides total facilities management £227m The value of a five year contract for providing office management, catering and waste disposal at 700 DWP sites across the UK A63 The new footbridge crossing the road at Princes Quay in Hull, used by 45,000 people a day, is one of many construction projects Interserve is running across the UK £25m Interserve’s part of a contract to redevelop the Prince Charles Hospital in Merthyr 600,000 The number of visitors to Edinburgh Zoo, where Interserve does the cleaning, security, park presentation, waste disposal and washroom services. £250m The sum paid by Interserve to buy Initial Facilities from Rentokil Initial in 2014, adding more than 25,000 new employees to the group. 51 The number of years that Interserve will hold the concession to build and run two new colleges at Durham University





The source said the government was not at loggerheads with Interserve’s lenders and had not discussed the plan with them.

“We wouldn’t tell them what to do, we would just give them our view,” said the source. “All we did is give them advice.”

But a separate Whitehall source earlier told the Financial Times: “Lenders are head to head with the Cabinet Office and the company is something of a bystander.

“It’s a bit like Brexit. No one wants no deal on the table but no one can agree and the company is running out of road and will hit overdraft limits soon.”

The financial health of government contractors has come under scrutiny in the wake of the spectacular collapse of Carillion last year, a saga that has cost the taxpayer an estimated £150m.

Interserve, whose contracts include cleaning the London Underground, announced a plan to swap debt for equity in December, saving the company but handing control to its lenders, which include HSBC, RBS, BNP Paribas, Emerald Asset Management and Davidson Kempner Capital.

Full details of Interserve’s plan were expected to be announced this week but could be delayed by the last-minute disagreement between lenders or opposition from the Cabinet Office.

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It is thought to have abandoned hope of raising money by issuing new shares, after construction group Kier’s own £250m rights issue fell flat, leaving banks nursing losses.

A Cabinet Office spokesman said: “We are supportive of Interserve finding a refinancing deal with its owners that allows it to continue to deliver good value public services for the taxpayer and that brings the company the stability to be able to compete for future business.”

Interserve declined to comment.