Bob MacKenzie, chief executive of Sea Containers, GNER’s parent company, told The Sunday Times the train company was profitable, but could not cope with the £1.3 billion premium that it had to pay to the Treasury under the franchise agreement.

Unless the franchise was renegotiated, the transport group would withdraw in May, because of a minor but significant clause in the franchise deal.

GNER’s performance bond — a sum it must set aside for the government to call on in case it fails — nearly doubles on May 1 from £15.3m to £28.7m. Sea Containers did not want to be potentially liable for the greater amount. “That is the important date, but I would hope we can come to an agreement [with the government] earlier than that,” MacKenzie said.

In March last year, GNER signed a new 10-year franchise under which it must make £1.3 billion in premium payments to the Treasury over 10 years.

MacKenzie said the revenue projections made when the deal was signed were “optimistic”. The Department for Transport has rejected suggestions it will renegotiate the franchise.

Last week Sea Containers went into Chapter 11 in America after failing to come to an agreement with creditors holding $378m (£201m) in bonds.

MacKenzie said the company had had little choice but to seek protection. After the bondholders, the second-largest group of creditors are the company’s UK pension schemes, which have a total deficit of £143m. The two funds have 1,300 members, but do not include GNER staff, who are members of a separate fund.

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Collapse 'was not my fault', says Sea Containers boss

Independent Online: 22 October 2006
By Danny Fortson

Former chairman of failed group blames Government for the high price of GNER franchise

The former chairman of Sea Containers, the bankrupt transport and shipping group, has refused to take responsibility for the company's collapse, instead hitting out at the high price the Government charged for the GNER rail franchise.

Speaking for the first time since the company filed for bankruptcy protection last Sunday, James Sherwood also said he had no plans to forgo his $2m (£1m) severance payment.

Since stepping down in March from the company he founded, Mr Sherwood has become a lightning rod for criticism by investors. One investor said he had "blood on his hands".

Mr Sherwood built Sea Containers into a conglomerate with disparate businesses. In January, he helped recruit turnaround specialist Bob MacKenzie, who began furiously selling assets, including a ferry line and 14,000 containers, to raise cash, but it was not enough. The company filed for bankruptcy protection after it was unable to make a $115m bond payment. Under the filings, it listed $650m in debts and just $67m of free cash.

Mr Sherwood told The Independent on Sunday that the company was brought down by "factors ... completely beyond my or anyone else's control". Instead, he said, rising fuel prices and the 7 July London terrorist attacks were to blame.

He denied that the company overpaid when it agreed a £1.3bn offer for the GNER franchise, but added: "I should also say the Government required that certain assumptions were used in the franchise bid, like an annual GDP growth of 2.5 per cent. The Government insisted that these assumptions be used to obtain the franchise. It's a bit unfortunate that they may not stand by those assumptions later on."

Sea Containers is currently trying to renegotiate the contract with the Department for Transport. The UK's GDP growth rate would have affected the price of the franchise because it influences the rate of growth of the rail industry.

Mr Sherwood's $2m severance is now a claim in the bankruptcy process. "I'll get paid at the end of the day. The value of the assets of Sea Containers exceed the liabilities of the company."

The group's two pension schemes have a deficit of £133m and could be put into the Pension Protection Fund. Mr Sherwood receives $250,000 annually from his Sea Containers pension in the US.