Losses at defunct contract hire and rental firm Axis Fleet Management stretched back to 2017 and were driven by an ageing fleet and onerous hire agreements, according to its administrator.

FRP Advisory also revealed it was on the verge of selling the entire fleet of vehicles to an interested party as part of a deal worth £28.6m, however the deal fell through when concerns were raised that customers would not replace their rental agreements.

The fallout from Axis Fleet Management’s collapse is laid bare in a report to creditors.

The report states that at the time of its administration on 10 May 2019, it operated a hire fleet of around 2,100 trucks, trailers and rigids and employed 32 full and part time staff.

Working capital was funded through an £500,000 overdraft facility provided by Coutts, but this was withdrawn “due to the significant funding requirement in excess of available facilities and precarious financial position of the company”.

Rajnesh Mittal and Miles Needham at FRP Advisory explained that cash flow pressure was attributed by management to losses in 2017 [recorded as a £1.7m pre-tax loss] and 2018 [£4.3m pre-tax loss], “driven by a surplus and ageing fleet, onerous hire agreements with customers and high overhead costs.”

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Blame was also attributed to “residual finance liabilities on termination of asset finance agreements and [a] build up of debtor arrears and disputes”.

In September 2018, Axis sought a two-month moratorium on its asset lease payments from funders totalling £3.1m; this was accepted by certain funders and unilaterally taken from other funders, which Mittal and Needham said resulted in a £2.5m benefit to cash flow.

The report said: “During early 2019, the group implemented various cost reduction measures and sought the disposal/return of its surplus and loss making fleet.

“However, due to its ageing fleet profile and further build up of debtor arrears, there was a continued decline in trading and cash flow performance.

“This in turn resulted in further creditor pressure.”

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FRP Advisory then launched an accelerated merger and acquisition process and 12 prospective buyers were approached, including a number of unnamed major national and international contract hire businesses.

Three offers were received, with one including the sale of its entire fleet.

However, the report added: “Following further due diligence, this party formally withdrew its interest on 7 May 2019 due to concerns around customers’ lack of appetite to novate rental agreements and potential discrepancies in the group’s fleet records.”

Axis was then placed into administration, with associated company Axis Fleet Management Leasing entering liquidation the following month.

Mittal and Needham said that at the date of their appointment, Axis had granted 76 charges to asset funders: both operating lease and HP funders and based on valuations they anticipate they will suffer a significant shortfall.

Preferential creditors are currently estimated to receive a 37p in the pound dividend and unsecured creditors are not expected to receive anything.

Rental market not in good health

At the time of its fall into administration, Des Evans, honorary professor at Aston Business School and a former Axis Fleet Management non-executive director, warned that the rental market was in a poor state.

Des Evans

Des Evans

He said: “The residual market has collapsed and a lot of rental companies and vehicle manufacturers have suffered. They have had to take some real pain in terms of residual values.”

Evans also warned that companies needed to improve their rates and margins: “You are looking at a £100,000 capital equipment being rented out for less than £400 a day.

“In a five-day working week that’s £80 a day. In a 10-hour shift it’s £8 an hour, less than the minimum wage. It’s a joke.”