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Until now, the exact reasons for the collapse of Yorkshire haulage firm E Pawson & Son were unknown. However, according to evidence given at last week's public inquiry, the seeds of the company's downfall were sown as far back as 2005. After several years of strong growth since the early 1990s, the firm felt it needed to diversify away from pure transport and move into warehousing. As a result, in October 2005 it acquired Castleford-based firm RCS (UK) - a warehousing and distribution  firm with a small property portfolio across West Yorkshire.

E Pawson paid £2.2m for the company, partly funded through using the firm's own assets, plus raising a chattels mortgage on a large number of E Pawson's trucks. The deal, while taking the group's combined turnover to £20m, also threw up a number of problems, according to director Rachel Slade. Within six months the main customer at one warehouse decided to move. The site was closed at a cost of £40,000. Shortly after, another former RCS site at Willowbridge, Castleford, was closed and operations consolidated into a new 235,000ft2 warehouse at Normanton, saddling the company with a 15-year lease.

Attempts to fill this site were not entirely successful either, Slade admitted. Although the firm tendered for work with Coca-Cola, which would have filled 80% of the Normanton warehouse, E Pawson lost out to another transport provider at the 11th hour.

Drained resources

Meanwhile, the firm tendered successfully  for work with Northern Foods to store product from Fox's Biscuits at the Wakefield site. This contract was also not without a price - Slade said that although the contract was signed in November 2006, it did not start until the following May. In the meantime, space at the warehouse had to be kept free, which meant six months where the warehouse was not fully utilised - consequently a further drain on the company's already tight cashflow.

Despite this, and another £50,000 of bad debt caused by the collapse of hamper company Farepak, when E Pawson was approached in late 2006 by the owner of South Yorkshire haulier Mill Transport looking to sell that business, it did not hesitate to buy it. "Mill Transport was very appealing to E Pawson," said Slade. "Most of our work was seasonal so the early months of the year were very hard. Building products seemed an ideal fit for us. We thought it was a very good move for the company at that time."

However, closer examination revealed Mill Transport was underperforming, she said - indeed its major contract, representing 80% of its turnover, with Wavin (Hepworth Building Products) was a loss-leader. "We renegotiated the contract in January 2007 and it was starting to turn the corner and perform well," added Slade.

End of the road

However, as 2007 progressed, the situation at E Pawson and Mill Transport deteriorated: two big contracts were lost - Cadbury and Wavin - which exacerbated cashflow issues. Following the loss of Wavin, Mill's subcontractors were so worried about not being paid, that money from E Pawson was used to settle debts "to avoid a winding-up order".

By early 2008, the situation was becoming critical: costs were trimmed where possible in the warehousing business, but problems continued. To obtain fuel, family members had to dip into their own pockets, ditto to pay the Easter wage bill. However, nothing could stop the slide and by the end of March, the company received a winding-up order that led to the firm's bank accounts being frozen administrators from the P&A Partnership were appointed on 10 April.

Slade added: "The transport arm was supporting both the warehouses and Mill Transport. We thought it was the right move for the company, but through the loss of some major blue chip contracts the warehouses became a massive drain on cash."

Finance fiasco

A ticking time-bomb for numerous truck operators has been revealed by E Pawson's administration, the public inquiry heard. The directors admitted to TC Tom Macartney that 31 trucks and 59 trailers were sold by the company where finance was still outstanding. Therefore, finance companies Clydesdale and Lombard may well seek the return of their property, potentially leaving hauliers out of pocket. Ultimately, the original purchaser could claim against E Pawson, but with an estimated deficiency of £3.5m they are unlikely to receive any money back.

Giving evidence, both Michael Pawson and Rachel Slade blamed E Pawson's finance director Tony Daly for the problems. They said it was Daly, or his department, who would check if a vehicle or trailer was free of finance before giving permission for it to be sold. Although Michael Pawson negotiated the deals, Daly or colleagues would handle the invoicing and paperwork. Slade added: "We were assured by the finance director that all the finance had been cleared."

In the case of the one vehicle sold to Keltruck, which was still on finance with Clydesdale, Michael Pawson said: "I spoke to the finance department to ask them to make sure the finance was clear before we sold it. "As far as I knew it was finance free and I was free to sell it." However, it transpired that on the day the original finance agreement with Scania ended in September 2007, it and 10 other vehicles were refinanced with Clydesdale.