Why Did Avonside Group Fail?

THE ADMINISTRATORS for Avonside Group Services Ltd, which collapsed on 7 September, have published a statement outlining why the company failed.

Avonside Group was one of the largest integrated roofing service firms in the UK, offering roofing, plumbing and renewables services countrywide via 37 branches, all of which were operated from leased premises, and employed 350 people.

Detailing the company’s debt – principally owing £9.9 million to the NatWest Bank and £3.4 million to unsecured creditors – administrators Begbies Traynor outline the events leading up to the company going bust.

Avonside Group Services Ltd was a holding company for Avonside’s 17 subsidiary roofing, plumbing and renewable energy services businesses, three of which had one further subsidiary.

The Group was formed in 1987, and in September 2003, Avonside Roofing was the subject of a management buyout led by Tony Burke, the former Executive Chairman, as Burke Investments Ltd.

In 2014, the Group secured overdraft and loan facilities from the NatWest bank. They were provided to Burke Investments against its assets with a cross guarantee from all companies within the Avonside Group. As further acquisitions were made, those companies also provided security to the Bank.

Financial Systems and Integration Problems

As Avonside grew through a series of acquisitions it resulted in integration issues, which contributed to the company’s failure, the administrators report.

Another contributor to failure was the introduction of a new accounting system – an Enterprise Resource Planning (ERP) system. The new ERP system led to some inaccuracies of the financial management information and reliability of the data.

This meant that Avonside staff found it difficult to operate and led to concerns over billing – causing cash flow difficulties, working capital funding issues, and margin erosion and, ultimately led to the Group’s financial records being considered to be “materially inaccurate”.

The Slide to Insolvency

Earlier this year in March, Avonside management sought additional working capital to help with cashflow and inject money into the company. They approached NatWest for £3.5 million. However, they were unable to provide the Bank with management information and forecasts to support the new funding request, which was refused.

Next, the Group approached its major shareholders. However, again, detailed financial information including forecasts were unavailable. Attempting to address this, in June 2022 an interim Chief Financial Officer and Chief Restructuring Officer were hired.

In August 2022, an external debt verification and collection agent was brought in help identify debtors and recover debts. Yet the financial reporting issues and inaccuracies, including in billing, remained.

Cash flow was extremely tight, and many suppliers were being paid upfront to enable ongoing supply and trading, whilst the shareholder funding was being sought.

Eventually, one of the shareholders submitted an offer of additional funding to Burke Investments, which was accepted. However, the funding offer was conditional on the bank agreeing to reduce its security on the company’s assets and for the company to enter into a formal restructuring plan.

Directors Disagree

These conditions could not be agreed between all the directors who decided Avonside could not continue to trade much longer given the cash pressures it faced.

On 12 August 2022 Begbies were told to seek buyers under an accelerated process. In the meantime, the shareholders, the Bank and certain key creditors continued to explore solutions to avoid the company becoming insolvent.

However, no workable solution was found that was acceptable to all parties.

On 3 September, Avonside directors decided there was no longer a realistic prospect that new funding would be provided and insolvency was its only option.

Sales and Administration

An offer for the purchase of Avonside Energy Ltd had been received in August and this was now accepted on 9 September 2022.  In a pre-package sale, JCP Two Limited bought 100% of the shareholding of Avonside Energy Ltd for £824,998, £1 for the order book of Avonside Renewables Solar PV, and £1 for Avonside Renewables Ltd.

The sale of Avonside Roofing Limited, Taylor Roofing Ltd, S M Roofing Contracts Ltd, and Bracknell Roofing Ltd were also secured, to Andrew Morley Business Consultancy Ltd for £473,500 completed on 7 September 2022.

White Plumbing Services Limited entered administration, also on 7 September 2022.

Debts Owing

As Avonside Group Services Ltd acted as a non-trading holding company there were no direct employees and so no preferential claims from employees or their pensions will be claimable. They also estimate there will be insufficient funds to pay back unsecured creditors owed £3,440,000.

NatWest Bank gets first claim on any assets and it has received £807,000 from the sale of the Avonside Energy business with no more funds expected to be paid to the bank. The administrators say they do not currently know of any outstanding liabilities to HMRC.

The administrators say they have retained “key” Avonside Group Services IT systems and the company’s physical records.

>> Read more about the Avonside administration in the news