Good morning, and happy new year! Shareholders in Silverdell (LON:SID) will be smarting, following the latest news that the shares are worthless. The group's debt was sold by the bank to a third party called RCapital Partners, who have already hived off the best part of the group for themselves, with shareholders receiving nothing. The rest of the group is being sold off, with shareholders again receiving nothing.

This has been an appalling situation with (at best) total incompetence shown by management, in allowing an apparently healthy & profitable group to suddenly collapse. Until just a few weeks before the collapse last summer, management were reassuring investors in meetings (one of which I attended & can remember) that everything was fine, and they didn't need to raise any equity! In my opinion they should be struck off from being Directors of any other companies.

What I find frustrating is that nobody ever seems to be called to account in situations like this. Shareholders just seem to shrug their shoulders and put it down to experience. We don't even really know exactly what went wrong, so it's difficult to draw clear conclusions. Although this is a stark reminder that when an indebted company gets into trouble, then the providers of the debt are effectively in the driving seat. In most cases banks are being very lenient, but in my view this has lulled many investors into a false sense of security, believing that weak balance sheets don't matter. They do, and Silverdell is a good example of how things can suddenly collapse when something goes badly wrong at a company with a weak balance sheet, and weak management.

Other warning signs here were;

1) A business model with inherently poor working capital characteristics - this was what originally put me off investing in Silverdell, when they first presented to investors. They had to pay their subcontractors weekly, but were only paid by customers on about 60 days, so as the business grew, it required more working capital.

2) Inexperienced, but ambitious management - the relatively young CEO had no prior experience of building a group by acquisition, but embarked on an ambitious expansion programme through acquisitions, and crucially failed to adequately strengthen the capital base, instead relying on bank debt. Clearly the Bank lost confidence, and shareholders only found out once the…

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