Crunch talks to stave off tea firm's collapse; Directors' homes and 40 jobs on the line as Lancashire Tea meets creditors today.

Byline: ALEX TURNER

DIRECTORS at Newton-le-Willows based Lancashire Tea were last night putting the finishing touches to a deal it hopes will rescue the struggling firm from financial collapse.

Company directors will today present proposals to a financial creditor which they hope will secure the firm's future and stave-off administration.

Lancashire Tea has been fighting against the effects of the recession and record high tea prices.

The firm, which employs 40 people, has been searching for investment but, despite being in talks with a potential investor for about two months, has been unable to tie up a deal.

A source close to the negotiations was hopeful last night there would be "a positive outcome" to the talks, which centre around payments owed to an asset finance firm for a key piece of machinery.

The company changed its name from Lancashire Tea Company Limited to LT Collections Limited earlier this month - while, at the same time, a new company called Lancashire Tea Limited was created on behalf of the directors. However, it is understood that the company is not positioning itself to undergo a pre-pack administration.

LDP Business understands that, despite the cashflow issues, sales are strong and the company is on course to record its first operating profit this year. And although problems with cashflow have caused some supply issues, supermarkets' customers have remained supportive. Lancashire Tea is stocked by expanding Liverpool retailer Home Bargains, while regional coverage is provided in the north of England by Tesco and Morrisons, and in Lancashire by Asda and Sainsbury's. It is also bought by 300 independent customers, including hotels, farm shops and delicatessens. Lancashire Tea was founded by Paul Needham and Lynn Hitchen, and began trading in April, 2006. The business partners had worked together at tea maker Gold Crown as operations director and financial controller respectively. Kirkby firm Gold Crown stopped trading after a fire at the factory in the summer of 2005, which led to the pair deciding to start their own business. It was launched with pounds 250,000 investment, including pounds 100,000 from Merseyside Special Investment Fund. The two directors remortgaged their homes, with managing director Mr Needham saying he had "never been this exposed in my life". When launching the product, he said: "After 30 years in the industry, this is a gamble, but we believe Lancastrians will back the product." However, market penetration has proved difficult without large advertising budgets to compete. The firm's development has been stunted by the recession and record tea prices., which has been caused by droughts in tea-growing countries and rising global demand for tea. In January, the company warned it was "12 weeks from closure" after it was de-listed from 300 Sainsbury's stores. The company needs to sell about 40,000 packs a month to break even. A successful sales drive staved off the short-term threat but, with the economic climate remaining tough, the company has been unable to secure its longterm future, which has brought matters to a head this week.