Allied Irish Bank owed nearly £20m by collapsed Bar Room Bar chain
One of the top names in Birmingham’s financial scene will have to write off millions of pounds from its balance sheet after becoming caught up in the spectacular collapse of the Bar Room Bar chain.
The Birmingham office of Allied Irish Bank (GB) was owed £19.5 million by the Solihull company that ran the high-end chain.
And now a credit report put together after the company went into administration in April has said they will have to write off a “significant” part of this, with other creditors receiving as little as a fraction of a penny in the pound on their investments.
The Bar Room Bar collapse was one of the first failures in the implosion of Birmingham’s high-end drinking establishments, which claimed its latest victim just over a week ago, with the closure of the Colmore Row nightspot Bar 110.
Bar Room Bar, which had a flagship bar in the Mailbox, was launched as a company in a blaze of glory two years ago by entrepreneurs Tony and Ross Sanders. The £20m project received massive financial backing from AIB, and at the time, the founders boasted of a £4m ‘war chest’ to be spent on ambitious expansion plans.
But administrators from Zolfo Cooper had to be called in in April this year after the firm admitted there were serious cashflow difficulties. Three of the chain’s 13 bars were closed immediately, with the loss of 50 jobs. The rest, including the Mailbox outlet, were eventually sold back to their previous owners, the Orchid Group, for a fraction of their buying cost.
Now the creditors report show that Bar Room Bar owed a total of nearly £25 million.
AIB and brewers Scottish & Newcastle, the two secured creditors, were owed £19.5m and £1.8m respectively. The remaining £3.2m was owed to unsecured creditors, who are unlikely to see any more than a pittance.
The report by Zolfo Cooper says: “Due to the level of combined secured creditor indebtedness exceeding the consideration for the business sale, the bank and Scottish & Newcastle will suffer a significant shortfall.”
It adds that Tony and Ross Sanders spent £1.2m on refurbishments in the first year of the company’s life, but still had to sell one of the bars to provide a cash injection in August 2008. The administration itself cost more than £350,000 to carry out.
The administration and sale of the remaining bars back to the Orchid Group is believed to have saved the jobs of some 213 staff across the national Bar Room Bar network. Orchid itself had gone into administration and rescued in 2008, but has since been given a new lease of life by the pre-pack deal, and has been expanding by buying up distressed assets including the Bar Room Bar network.
The whole entertainment sector in Birmingham, particularly at the high end occupied by the likes of Bar Room Bar, has been hit hard by the recession as the credit crunch meant consumers cut back on luxury spending.
Recently a pair of luxury city bars, including Bar Room Bar’s Mailbox neighbour Epernay, was bought out of administration by a hotel chain after collapsing.
And earlier this month Bar 110, a bar, restaurant and private members’ club on Colmore Row, closed its door and ceased trading after six-and-a-half years at the centre of Birmingham’s wealthy professional services district.
The pub and bar industry as a whole has been struggling, with companies often over-leveraging themselves with ambitious expansion plans and then finding them difficult to service as income was strangled by the recession.
AIB said it could not comment on an individual account.