KPMG is hopeful it will soon complete a deal to sell building products supplier Panaloc, which was taken into administration three months ago after its shipping tycoon backer declined to pump in more cash.

A spokeswoman for the firm said advanced negotiations were under way with a potential buyer who wants to take over the business as a going concern. Around 180 jobs have gone and 20 staff remain to complete a contract at the company's Trafford Park factory.

A report from administrators reveals that Panaloc's problems reached crisis point after its Liberian-registered parent company, Paragon Maritime Inc, withdrew cash support.

Panaloc, founded by joiner Eric Dean, lost £5m in the nine months to January and was experiencing cash flow problems after spending heavily on staff, machinery and premises but taking longer than expected to secure contracts for its pre-fabricated building system. Paragon, controlled by a ship owner and based at an address in Broad Street, Monrovia, had already invested £15m in the business.

The KPMG report says: “As a result the directors explored whether any third party could be found who would inject further monies into Panaloc. A number of parties, both trade and venture capitalists, expressed an interest in the business but no firm offer was forthcoming.

Winding-up orders

The situation worsened when creditors issued two winding-up orders, forcing the firm's bank General Capital to call in administrators in May 2008, although the company continued to trade with reduced staff.

A statement of affairs prepared by KPMG's Paul Dumbell, Brian Green and Paul Flint reveals that creditors are owed a total of £21.4m, including a claim for £15m from Panaloc Holdings Ltd, whose key shareholder is Paragon. Assets are estimated to realise £2.6m.

Panaloc, founded in 2004, designs and makes wall panels, roofs, pods and ceilings from orientated strand board (OSB). The company's chief innovation is in the way the layers of board are glued together. Panaloc owns the sole UK rights to import OSB4, an advanced version of the material, from Swiss manufacturer Kronoply.

In February, the equivalent of 160 truckloads of the material was delivered from the German port of Rostock by the 3,130 tonne bulk carrier Neptun, the largest vessel to navigate the Manchester Ship Canal in 25 years.

Prison cell concept

Panaloc invested more than £12m in a 320,000 sq ft head office and factory on Alba Way, off Barton Dock Road, where the OSB was made into products for use in homes, hospitals, hotels and offices.

In a company news release, Dean said Panaloc's process “combines the best in terms of CAD-CAM and CNC machining, but which does so as a means of producing structural components that quite simply fit together like Lego.

“It is quite feasible for us to design almost any type of building, or interpret those from a third party, and engineer the complete structure for delivery and erection onsite. Such is the sophistication of our process technology, we can turn an architect's drawing into a 3D model accurate to plus or minus 1mm.”

Clients have included Taylor Woodrow, which is using Panaloc products on rebuilding projects at hospitals in Whiston and St Helens on Merseyside.

Creditor Paul Watson, of Wentworth Communications, said he had no ill feelings towards Dean despite being owed £20,000 for public relations work. Watson said Panaloc's product was the best he had come across in 20 years of working for construction industry clients.

“They had a very, very marketable and potentially successful product, even given the fact that the building industry is struggling,” said Watson. “It's the most remarkable building system I have seen, much better than traditional timber frame. It's not as though the system isn't proven — that is the tragedy behind it all.”

Watson said Dean was developing the business further and was working on a prison cell concept which would have involved inmates building their own accommodation. “Eric had some great ideas,” he added.


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