A critical deadline looms for Red Funnel on Thursday (March 27), when the ferry operator must finally file its accounts with Companies House. The company has delayed this by six months, twice changing its financial year-end – an accounting move dubbed the ‘one-day diddle’ – giving three months breathing space each time. However, this tactic cannot be used again, so Islanders should soon get a clearer picture of the company’s future.

Failed deals and a collapse in value

Last March, the IW Observer reported that Red Funnel was up for sale. Classic red flags gave the heads up – official documents dated February 28 showed eight directors had left and undertakings given that assets would not be sold.

CEO, Fran Collins, repeatedly denied Red Funnel was for sale, but in September Arcus Investment Partners revealed the truth, contacting local politicians inviting them to act as “constructive partners” if they purchased the company.

Arcus also highlighted a troubling reality, that massive investment is needed for infrastructure and new ferries, spelling out clearly, “The entire fleet of RoRo ferries is reaching the end of its useful life.” Islanders and visitors relying on the service won’t argue – with mass cancellations and just one vessel in service over recent weeks.

After Arcus pulled out in November, another suitor, Real Asset Investment Management (RAIM), stepped forward.

They appear unlikely bedfellows as they partner with “top quality management teams”. Fran Collins, at the helm for seven years, is the only Red Funnel boss to have ever presided over a drop in the company’s value.

Negotiations with RAIM reportedly centred on a bargain-basement price of £40 million – a massive drop from the £369.6 million paid in July 2017. Hopes of finalising a deal before the looming Companies House deadline have not materialised and there are now only days left to make any announcement.

How can Red Funnel keep trading?

Red Funnel is not an unprofitable company – its 2022 accounts showed £14.9 million in profits after all business expenses.

However, two major issues threaten the company’s future. The urgent need for new ferries and its substantial debts – £116.1 million in bank loans and £184.2 million in internal shareholder debt, with any interest charged but not paid adding to the massive debts.

After a year on the market with no buyer in place, to continue operating Red Funnel must convince its accountants it is a ‘going concern’ – able to meet its financial obligations for the next 12 months. While the company has big liabilities, if it can service those debts, it can legally carry on trading.

Current shareholders appear to have accepted they made a poor investment decision, with its Canadian part-owners confirming it and other shareholders have ‘significantly reduced’ their involvement with Red Funnel. That leaves the bank debt of £110.1 million, of which £40.7 million should have been repaid last July.

Without a sale in place, the only viable option for Red Funnel to continue operating is to persuade the banks to extend their loan deadlines, collecting interest rather than calling in debts, and hoping for a sale. The most logical extension would appear to be to extend the £40.7 million to align with the £30 million due to be repaid next September.

Yet this fails to address the urgent need for new ferries, leaving the company reliant on 30-year-old vessels, ever more prone to breakdowns and service disruptions. This will reduce profits and make Red Funnel even less appealing to investors. A lifeline for our lifeline service perhaps – but compounding the underlying problems.

Technically, Red Funnel could file its accounts late – a criminal offence, although it incurs only a modest £150 penalty for the first month. This would do little to reassure potential investors or Islanders and visitors who rely on the services.

Crucially, the company cannot legally continue trading unless it finds a way of dealing with the debts. To do so could lead to serious consequences, potentially including directors being disqualified and becoming personally liable for the company’s debts.

What’s next for the company?

Will Red Funnel secure the much-needed investment over the next few days? Or will it continue to limp along as a shadow of its former self, damaging the Island’s vital transport connections and economy with it? We may not have to wait much longer to find out.

We can only hope management’s backup plan doesn’t mirror the Hythe Ferry’s desperate appeal for public donations to get the service running again. In just under a month, the Hythe-Southampton service, also owned by Red Funnel, has raised just over one per cent of the £250,000 needed.