Downfall of ISG: how and why it collapsed

ISG was preparing to post after tax losses of more than £130m at the time it collapsed into administration with problem high-rise residential jobs costing it more than £100m, a new report by administrator EY has said.

The update, published on Companies House, reveals that by the time the firm collapsed into administration on 20 September, its debts had piled up to £1.1bn.

New details have also emerged about the sale process to would-be buyer Antipodean Holdings, fronted by South African entrepreneur Andre Redinger and former Multiplex staffer James Overton.

EY’s 176-page report said Antipodean reduced its initial offer for the business, made in the spring, to just £1 in early September and that, amid claims that Antipodean was unable to “conclude the transaction and meet the immediate funding requirements of the group,” ISG’s US owner Cathexis – run by a billionaire called William Harrison – told the firm the deal would not be going ahead, three days before ISG eventually sank.

Worries over Antipodean’s funding had already prompted a so-called “accelerated marketing process” in September centred on the sale of the fit out business.

This had been the subject of an offer from an unnamed private equity firm in March, only for that to flounder because, according to EY, “it was highly conditional and was subject to due diligence being conducted as well as complex separation issues being required to be resolved”.

The same unnamed buyer – one of 11 private equity firms to sign an NDA in the spring ahead of receiving information about the fit out business – was approached in September and again “expressed interest” in buying the fit out arm.

But the deal hit the buffers again “in a large part due to the uncertainty as to whether certain contracts would be successfully novated to the buying entity as well as the material working capital required to fund the fit out business”.

EY said others were approached on an “urgent basis thereafter but this process did not result in a buyer being identified who was willing and able to proceed with an acquisition on a going concern basis within the timeframes required”.

It added: “Cathexis confirmed to the group that there was no prospect of its own refinancing process providing further funding to the group in the near term and no further funds available as an alternative source of liquidity.”

EY said that ISG’s draft 2023 accounts – which were never filed – showed a turnover of £2.2bn and a post-tax loss of £133m. It said they also included writedowns of £148m on contracts losses “which have been driven by legacy losses on a number of material construction contracts in prior years coupled with the group’s decision to exit the logistics and distribution business and crystallise contract losses on several large contracts in that division”.

At the time it went down, ISG employed 2,380 people with an initial 216 kept on to help with the winddown of the business although that has now dropped to 22.

Construction employed the most staff with 879 while ISG Interior Services, the parent of its engineering arm – which worked on data centre and science schemes – and the fit out business, employed 729 people.

As well as the problem high-rise schemes, ISG’s finances were also hit by the move to pull the plug on the British Volt factory in Northumberland, which it had been due to build, and the decision by the client to put on ice a film studios job in Hertfordshire called Sunset Studios.

“The combined impact of these projects not proceeding as expected negatively impacted cashflow and profitability,” EY said.

It said a winding up petition filed in October 2023 by a supplier against ISG Construction in relation to a missing £70,000 – which resulted in an “immediate” payment to settle the debt – and a credit insurer removing its cover “for multiple suppliers as a result of the petition led to negative market speculation regarding the group’s financial stability, which in turn led to many suppliers and creditors narrowing their credit terms”.

As a result, the firm asked for, and was given, a Time to Pay Arrangement (TTP) with HMRC relating to £60m of VAT that was due. A revised TTP agreement was struck with HMRC in February which would have seen ISG pay back £5m every month of 2024 with the final payment due on 31 December.

A fresh TTP request in January triggered a refinancing strategy which, EY said, would either see the sale of the fit out business or the refinancing of Cathexis “which was intended to result in the required funds being injected into the ISG group”.

EY said its US business, EY Americas, was brought in after the October 2023 winding up petition with its initial brief, which included cashflow forecast review and refinancing support, later extended to include liquidity advice, cashflow monitoring and negotiating a TTP agreement.

It added it was brought in to help with the sale of the fit out business in March and added that “preliminary contingency planning, including discussions with UK government in respect of contracts in which they had an interest, was commenced.

“In early September 2024, when it became apparent that a successful sale of the group was going to be challenging, comprehensive contingency planning for an insolvency of the group was undertaken. This included making plans to ensure that ongoing project sites could be made safe and transferred to new contractor.”

At the time it collapsed, ISG had 100 live construction sites and 500 live fit out and retail sites while EY’s report also said the eight collapsed companies had a “highly complex” IT infrastructure “with over 150 unique suppliers and software providers which are either bespoke to the group or irretrievably integrated into various applications”.

Trade creditors of the eight collapsed ISG firms – ISG Construction, ISG Interior Services Group, ISG Engineering, ISG Central Services, ISG Jackson, ISG Retail, ISG Fit Out and ISG UK Retail – are owed £308m, EY said.

Four companies – ISG Construction, ISG Retail, ISG Engineering and ISG Fit Out – account for the bulk of the losses trade creditors are facing. The largest amount is for £111.5m owed to trade creditors by ISG Fit Out.

EY warned that it expects to recoup just £35m from the administration and has told unsecured creditors, who include intercompany creditors, owed a cumulative total of £885m, not to expect a dividend to be paid.

HMRC, listed as a secondary preferential creditor, is owed £89.4m while primary preferential creditors, consisting of employees are owed £6.3m – with this group set to be paid a dividend.

Cathexis has been contacted for comment.