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Two connected pharmacy companies comprising three branches were forced into administration when spiralling drug costs “were not matched” by increased NHS reimbursement, leaving them unable to pay their staff, financial reports have revealed.

Salrook Healthcare Limited, the holding company for Westminster Park Pharmacy and Owens Chemist in Chester, and Ph4macy Limited, the holding company for A Karims Chuckery Pharmacy in Walsall, both ceased trading on August 14 this year after their financial position became “critical”.

Aqib Arif Sheikh acted as director for both companies, which were incorporated in 2011 and 2010 respectively. Mr Sheikh bought Salrook Healthcare Limited in 2023. 

Administrators from FRP Advisory said in a recently published report on Salrook: “The company experienced a deterioration in financial performance as a result of significant increases in operating costs, particularly the cost of certain pharmaceutical products.

“These cost increases were not matched by corresponding increases in NHS funding under the pharmacy contract, resulting in sustained pressure on margins and reduced profitability.”

FRP said Mr Sheikh explored the option of refinancing the company’s indebtedness but this “did not ultimately proceed, and the alternative lender withdrew from the transaction”.

The report continued: “As trading losses continued, creditor balances increased to unsustainable levels, with several key suppliers placing the company on stop and refusing to provide further stock on normal credit terms.

“The resulting working capital constraints adversely affected the company’s ability to maintain adequate stock levels, leading to a reduction in turnover and a further deterioration in cash flow.”

By August this year the company’s financial position was “critical” as it became unable to pay staff their wages, forcing it to cease trading in August. 

The administrators’ account of Ph4macy Limited’s slide into insolvency is almost identical, making reference to “unsustainable” debts as trading losses mounted and a struggle to maintain its required stock levels.

Creditor Rx Bridge brought a winding up petition against Ph4macy in February this year. This was dismissed while refinancing option were explored but the company continued to struggle, seeing its items nosedive from 7,000 in March to 2,810 in June as wholesalers put the pharmacy on stop. 

Administrators from FRP Advisory were instructed to assess the restructuring and insolvency options available and to seek purchasers for the two companies, leading to them both being sold through a pre-packaged arrangement in mid-September to RJR Chem Ltd, an independent chain owned by brothers Jaspal and Ricky Rahania.

The brothers made an offer of £640,000 for all three pharmacies plus stock, which was accepted on the grounds it “represented the best value reasonably obtainable in the circumstances” and preserved the goodwill associated with the NHS contracts, ensured service continuity, protected the jobs of five employees and offered the best outcome for contractors.

Secured creditors Unity Trust Bank and Rx Bridge were respectively owed £1.1m and £135,492 by Salrook Limited. Wholesalers AAH (owed £105,000), Alliance Healthcare (£24,000), Ethigen (£35,000) and Sigma Pharmaceuticals (£29,000) were also among the company’s 26 named creditors, who were collectively owed £1.6m. 

In the case of Ph4macy Limited, AAH was owed £65,000, Alliance Healthcare £13,000 and Lexon UK £38,000, with a total of £1.5m owed to 27 creditors.

Both the secured creditors were expected to make a shortfall from the sale, while the named wholesalers and other secured creditors were not expected to receive payments.

Creditors of the two companies approved the administrators’ proposals on October 5 this year. 

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