The administration of Manchester construction haulier Digway was precipitated by Stobart Rail withholding £317,000 from the company after its new management discovered it had overpaid by hundreds of thousands of pounds.

The detail is included in a report to creditors from administrator Cowgill Holloway Business Recovery, which explained how a string of bad debts also caused cashflow problems to Digway.

At its peak, the haulier was making revenues of £3.06m, but in late 2018 and early 2019, two bad debts caused by insolvencies put a £60,000 hole in its cashflow.

Digway then tendered successfully for a minimum 12-month contract with Stobart Rail & Civils and it invested heavily in trucks and plant to deliver the work.

Another £50,000 bad debt followed before a change in management at Stobart Rail prompted a financial review and the revelation that Stobart had overpaid Digway.

The report said: “As such, [Stobart] was withholding payment of invoices totalling £317,000.

“To assist with short-term working capital, the company sought further financial support and obtained a £250,000 loan.”

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In order to reduce costs from the Stobart fallout, the company returned some financed machinery, but incurred a penalty of around £30,000 as a result.

Subcontractors taken on for the Stobart contract were also told they would not be receiving any further work.

Digway managed to negotiate a £250,000 settlement with Stobart, but poor weather at the beginning of the year coupled with reduced income and rising costs led to the business running out of funds.

The report said an independent third party CDL then approached Digway, interested in acquiring the company.

A company voluntary arrangement was rejected and so the company entered into administration on 11 May, with a pre-packaged sale to CDL taking place the following day for £20,000.

The deal did not include a transfer of any Digway staff, who were all made redundant.

Deloitte added that no directors of Digway are involved in the management or ownership of CDL.