M&E firm sunk by bad debts
A family-owned M&E contractor which was placed into administration after more than 50 years of trading in December was sunk by a series of bad debts, according to an administrators’ report.
S Barratt & Co, which was started in 1955 and was run by Frank Barratt, had employed more than 60 people and had a turnover of £16.2m in 2010 – the last year for which accounts were filed.
This had shrunk from £19m in the prior year as work in several fields such as contracts on city centre apartments and PFI-funded schools building programmes halted.
Directors of the Stretford-based company told joint administrators from Duff & Phelps that from 2009 onwards, the company had suffered as a group of main contractors “started relying upon the Construction Act as a tool to apply Withholding Notices on scheduled payments” it was owed.
It added that challenging these withheld payments “became a costly exercise” and S Barratt racked up legal bills of £250,000 in 2010. Even if cases were won, this often resulted in the main contractor being wound up and the debts becoming largely unrecoverable.
By 2011, the company had managed to diversify into installing solar panels, but work in this sector also slowed down when proposed contracts were withdrawn and it was hit with three more main contractors withholding payments worth £3m, which sparked a cashflow crisis. The workforce was initially cut to 49 and later to 32, and although efforts were made to sell the business no buyer was found.
Administrators said that some of the firm’s contracts “contained specific clauses relating to the insolvency of the company which prevented the joint administrators from trading the business. As a result, it was forced to lay off all of the remaining staff when appointed in December.
An estimate of the company’s financial position indicates that although it had no bank debt, it owes around £3.75m to creditors – £1.7m of which is owed to subcontractors, £670,000 to HMRC and £490,000 to employees in lieu of notice and redundancy pay.
Administrators said that based on current estimates, “it is possible that there may be sufficient realisations to enable a distribution to creditors”, but it did not indicate how much.
