Little Chef went into administration yesterday only to be rescued immediately for a knockdown price of £10 million by a venture capital company that plans to cut 40 of its 235 outlets.

The GMB union accused Permira, the private equity firm that sold Little Chef 15 months ago, of asset-stripping during its three years of ownership — a charge that Permira rejected, claiming that the company was profitable when it sold it. The People’s Restaurant Group (PRG), which bought Little Chef in October 2005, also dismissed the suggestion. A source said its failure had been for “all sorts of other reasons”.

One was the financial structure put in place by Lawrence Wosskow and Simon Heath, the entrepreneurs who set up PRG. Shortly after buying the chain for £52 million using mainly bank debt, they recouped about £60 million through a “sale-and-leaseback” deal involving the sale of the chain’s property assets. That let them pay off the bank debt but left a punishing rent bill.

A recovery plan led to an improvement in trading but proved slower than expected and the business has been losing about £3 million a year.

Another factor was Mr Wosskow’s heart attack last summer, prompting him to seek to leave his investment. Last-ditch attempts to find new backers for the existing structure failed and PRG called in Pricewaterhouse Coopers as administrators. The good news for Little Chef’s 4,000 staff is that a buyer has been found for most of the business. RCapital, a “turnaround specialist”, has taken on 196 branches.

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