As the Lindsey Oil Refinery gets set to dispense its last drop – with crude oil supplies running out on Friday, and operations being wound up after no buyer came forward – Harvest Energy dealers are in their fifth week of limbo.
With some retailers tens of thousands of pounds out of pocket after having to purchase fuel on the often unreliable and expensive spot market, they are no clearer on their future with the Prax Group subsidiary. It continues to tie them to long-term contracts, under a so-called force majeure clause, on the premise that the outcome is out of its control.
Precedents for such a situation are few and far between. A significant UK oil company suddenly stopping supply of fuels to its customer network is not something that happens often. In fact, I really can’t remember it happening before. But the Prax Group, owner of the Lindsey Oil Refinery in North Lincolnshire, has done just that.
And the problems caused by these events go much further than pushing Harvest dealers to the brink.
In the first place, Prax owned and operated one of the UK’s ‘big six’ remaining oil refineries, which it had acquired from Total Oil in 2021. The refining business went into administration in June, but despite appeals for government support, no credible offers were received and the Official Receiver was appointed as liquidator on June 30.
The prognosis isn’t good: it is estimated that somewhere between 600 and 1,000 jobs are likely to be lost in the area, including those directly employed at Lindsey and related sub-contractors. It appears that it will take some three to six months to safely wind-down operations there, meaning that job losses will probably start in November.
It is here perhaps worth reminding ourselves of the distinction in practical terms between administration and liquidation. When we talk about failed companies an administrator can sometimes be appointed by the directors of a business when they realise that it is unable to trade its way out of trouble. More often the appointment is made by a major secured creditor, such as the company’s bank.
The administrator’s job is to (a) try and produce an up-to-date ‘Statement of Affairs’ – essentially a balance sheet and cash-flow forecast – in order to ascertain what assets and liabilities exist, and what the projected funding requirements are; and (b) to supervise the immediate running of the company until such time as it can be financially re-structured or sold as a going concern. However, if the administrator discovers that the company’s financial position is beyond any realistic hope of rescue, that is usually when the liquidator is called in.
The liquidator is effectively the company’s undertaker. Their role is to break up the company: collect and sell-off whatever assets the business may have in order to pay-off some portion of what the company’s creditors are owed. As anyone who has been owed money by a failed company will know, the process is slow, and almost invariably there’s little or nothing left for unsecured creditors at the end of the process. Once the job is done, the company ceases to exist as a legal entity.
From what we know so far, it’s obvious that there was no realistic future for the refinery – hence it is in liquidation already. As far as Harvest Energy, the fuel-distribution side, is concerned the administrators are there to try and run the business – if possible. They do not provide funding themselves, but have to try and obtain further investment from outside. And this may explain why the apparent responses that Harvest’s dealer customers have received so far have been vague at best.
In the current situation, it is reasonable to assume that Harvest Energy will need to obtain fuels from suppliers other than the Prax refinery. However, given the circumstances, they are themselves likely to be seen as a risk by potential suppliers, at least until their financial position is more clearly known. Harvest Energy supplied 125 dealer sites and 33 company-owned forecourts. Sourcing enough fuel to be able to provide reliable, regular deliveries to that number of sites is going to be challenging for the administrators, at least in the short run.
I sincerely hope that dealers do not have to wait another five weeks for the situation to be resolved. This is one of those events where nobody is gaining and a great many people are suffering. And the origin of the problems almost certainly goes back a lot further than the end of June.
- Jan Mikula represents nationwide franchise accounting company EKW Group – ekwgroup.co.uk
