Potential £50m cost of cladding claims helped send insulation specialist under, administrator says

Administrators for an external wall insulation specialist which collapsed in January have said the expected £50m cost of cladding claims it was facing helped send it under.

Sto Ltd, which was based at King’s Norton near Birmingham, called in Grant Thornton in the middle of January.

The firm was a subsidiary of German parent Sto SE & Co. KGa, set up in 1954, and which had a turnover of £1.5bn in 2023. It employs more than 5,700 people across nearly 40 countries.

In an update filed at Companies House this week, Grant Thornton said: “Following the introduction of the Building Safety Act 2022, building owners are required to remediate defective or non-compliant cladding. This has resulted in claims by building owners against the original building contractors and suppliers of cladding, seeking contributions towards the cost of remediation.

“[Sto Ltd] has been approached by more than 20 parties representing, either claims, pre-action protocol letters or notification of potential claims in respect of building projects undertaken for the period 1997 to 2015.”

It said the potential cost of the claims was around £50m which, Grant Thornton said, had been “based on the directors’ worst case scenario if the company is not successful in defending the claims”.

It added: “The UK directors formed the view that the company was unable to meet its financial obligations in defending these claims or covering any potential losses arising from any proceedings. They further concluded that the company was technically insolvent and should consider the process of administration. This view was shared with the company’s parent company Sto. Se.”

Grant Thornton said the parent, having decided Sto Ltd was unable to pay its debts, lodged a petition to wind up the company in the middle of December last year. It said it was then agreed “[Sto Ltd’s] directors would petition for the appointment of administrators”.

In its last set of results, Sto Ltd posted an improved turnover of £15.8m in 2023 but pre-tax profit fell 12% to £672,000.

Income in 2024 was projected to be £16.7m with net profit of £468,000, down 5% on the previous year.

According to Grant Thornton’s report, 48 people were employed by the company with 36 losing their jobs in January while a further eight have been kept on to help with the administration.

Employees, who have been classed as preferential creditors, have been paid back more than £22,000 in outstanding holiday pay with a further £9,000 in pension payments also paid. Secondary preferential creditor, HMRC, due close to £392,000, has also been told to expect its money back.

Unsecured creditors are owed £54.7m with around £50m of this in contingent claims for cladding repairs.

Sto SE & Co. KGa has been contacted for comment.