| Further Twists In Connaught Saga|
|At the time when Connaught went under in September this year, the figures looked pretty bad with a reported £42 million black hole in its accounts. The failure of the company was at the time put down to a combination of falling revenues, over-aggressive pricing and questionable accounting practices. Now the situation is looking far worse than was originally thought and the losses are likely to be higher than anticipated.|
Accounting firm KPMG was appointed as administrator and originally reported that management accounts appeared to show that around £46 million was owed to thousands of unsecured creditors. However, it now believes the total owed may be as much as £100 million. Having started to compile a creditors report, the firm has discovered around 50,000 invoices that have not been recorded. The employee records were in a similar state to the accounts, with a KPMG representative reporting them to be unreliable and the worst payroll records he had seen in 20 years.
Money, Money, Money (or lack thereof)...
The latest estimate is that trade creditors are owed almost £57 million while HM Revenue and Customs is due £21.7 million. With the creditor's report showing only around £600,000 available to pay unsecured creditors, this suggests a final dividend of less than one penny in the pound and large losses for many creditors.
A possible source of funds for creditors is a retail and storage building in London, which has an estimated value of £1 million and which KPMG hopes to sell. However, there are doubts whether this was correctly transferred from subsidiary AE Williams, which Connaught bought in 2007, to Connaught Partnership. Solicitors are trying to establish who holds title to the property since Connaught Partnership is part of the administration but AE Williams, which is a dormant company, is not.
Morgan Sindall to the Rescue (Sort of)...
At the time of Connaught's downfall, some 4,200 jobs were put at risk and around 280 contracts with councils and public bodies were left with an uncertain future. A big proportion of the contracts were bought by Morgan Sindall and 1,400 employees were made redundant. Morgan Sindall acquired the Connaught contracts in a £28 million deal by its subsidiary Lovell but has since admitted that the level of revenue is not going to be as good as it first hoped. The 89 contracts it took over were originally stated to be worth around £200 million in annual revenue but the company is now expecting to get only half of this.
The problem appears to be that the company didn't actually acquire the contracts themselves, only the 'contractual relationships' with the existing clients. As a result, it was relying on the clients to award it the contracts without re-tendering them. Only 45 of the local authorities have actually done so and the remaining 44 have declined the opportunity. The main reason for this seems to be that they are wary of falling foul of European procurement rules unless they go through a proper tendering process. Only the Connaught staff working on the 45 transferred contracts have therefore been taken on by Lovell and the rest face an uncertain future.
Morgan Sindall still maintains that it is pleased with the deal, even though the £100 million of additional revenue each year is only half the figure that was originally claimed. The company stresses it had to get the deal done quickly before others came in for the assets. The contracts are not expected to generate any profits until 2012, with acquisition and integration costs amounting to around £3 million during the second half of 2010.
The Connaught saga is set to drag on for some time to come and you get the feeling that there may yet be further twists in this sorry tale. Perhaps the recession was the main instigator in the downfall of connaught. However, if the stories of dismal record keeping and short-sighted strategy are true then you would imagine that it is these factors that left the company susceptible to the downturn in the first place. When people's lively-hoods are at stake, you would have hoped those with management responsibilities would have acted more responsibly.
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