Client loss led to dimming of Brilliant Media

A LOSS of Brilliant Media’s major clients, coupled with a potential £3m tax liability, were key factors in the agency’s sale to Manchester-based Mediacom North through a pre-pack administration, a new report has revealed.

Other factors including a slump into the red, a company restructure and pressure from creditors made the sale to MediaCom North the only option to ensure the future of the business, according to details published in a report by administrators Begbies Traynor.

Joint administrators Bob Maxwell and Rob Sadler said Brilliant, which was the UK’s largest independent media agency last year, became insolvent last November because it was unable to pay its debts.

A pre-pack administration, whereby the assets of a company are sold immediately after it has entered administration, was seen as the best way to realise a sale for Brilliant.

“Consequently an approach to one potential purchaser, MediaCom, which was known to have the appetite and resources to acquire the business on an accelerated timescale was considered the best means of preserving and realising the value in the business,” the report said.

Assets acquired by MediaCom, which paid £1 for the business but took on liabilities of more than £2.1m, included goodwill, plant and equipment and marketing information.

Following the sale, MediaCom, which has 116 offices in 89 countries, said it would be strengthened by the addition of Brilliant’s Leeds, Manchester and Birmingham operations.

MediaCom pledged to retain Brilliant’s 82 staff and honour any business conducted with Brilliant from December 1.

The joint administrators’s report states that although Brilliant Media posted a £39,000 pre-tax profit in the year ended March 31, 2010, this had become a £5.5m loss a year later, including exceptional costs of around £5m.

The loss of major clients DFS and Asda in early 2011 led to the withdrawal of credit from some of Brilliant’s major suppliers and a forecast shortfall in its cash funding.

A company restructure followed in February last year but that led to “market rumour”, resulting to further lost clients.

Furthermore, late last year, a potential £3m tax liability to HMRC connected to contributions made to an employee benefit trust between 2000 and 2002 was also identified.

This, coupled with the loss of customer Safestyle, the threat of reduced credit from suppliers, and debt collection issues meant there was insufficient funding to continue trading.

Meanwhile, the Office of Fair Trading is set to investigate the acquisition of Brilliant Media by MediaCom North.

A spokesperson for the OFT said it was to see whether the merger breached competition rules.