John Duckers investigates the heartache behind the rising insolvency figures as two directors caught by two big business failures - Erinaceous and Chase Midland - reveal the personal cost of insolvency.
After the Chase When Rod Ackrill’s Chase Midland development group crashed earlier this summer he says he found the experience “devastating”.
It was a double blow because just three weeks before, on 2 June 2, he had suffered a stroke at the age of 61. He blamed it on stress. He lost his speech, vision and balance, albeit thankfully they are now nearly back to normal.
But it meant he was trying to save the business operating from his sick bed and against doctors’ orders to rest. “You have to do what you have to do,” he says.
He is winning the health battle, but the battle for Chase Midland was lost.
The problems arose on the residential side when the bottom dropped out of the market. PricewaterhouseCoopers was drafted in to handle the affairs of Chase Norton Construction and this was followed by Ernst & Young being brought in to administer holding company Chase Midland and Chase Homes (Eastern).
Deloitte was appointed to look after the group’s Harborne Apartments business, a 94-flat development in High Street, Harborne.
The remaining element – Chase Commercial, building the likes of hotels, offices and warehouses – avoided the collapse and continues to operate normally. Some 250 jobs went at the £100m turnover group.
Ackrill felt he had let down staff and suppliers, yet his conscience is clear.
“You look back with hindsight and think ‘what if I hadn’t done this project or that project’, but I don’t think it would have materially affected what happened,” he says. “There is nothing I am ashamed of yet it leaves you feeling quite dirty and slightly guilty.”
His friends rallied round – ironically, it all happened during his year as president of Birmingham Chamber of Commerce – and the staff were sympathetic.
“Even people I owed money to have been supportive,” he says. “Obviously there were one or two who were a bit aggrieved, but there was no personal backlash.”
The housing slump happened so quickly the firm was simply caught out. The residential arm had about 250 units in progress and committed sales of 180. But some began to fall through as the banks tightened their lending and restricted the number of mortgages.
Ackrill sought restructuring advice, but an attempted rescue package never happened.
He says: “Generally the banks – there were about eight of them – were looking to be helpful. The difficulty was that one or two were singularly unhelpful. And because we failed to get 100 per cent backing we had to call in the administrator.
“It was absolutely devastating. I had put 17 years of my life into Chase. The banks don’t look at the wider picture – the social responsibility element. They just look at how much they have in and how they are going to get their money out.
“At the time we were profitable. But profit does not convert into cash, and it was down to cash flow at the end of the day.”
Cross guarantees meant the construction division, which had been doing well, was brought down by the housing side.
Ackrill says he hopes to make a comeback, though not in housing. Much of his own money was lost – he won’t say how much. And he has a family to support, with children going through education.
“My pension was my business – I think I will have to carry on working,” he says.
But not for the moment.
The aftermath of the stroke still means he gets tired easily and, given the grim state of the property market, he sees little point in making an early return.
So he is heeding the medical advice and keeping business to a minimum. But he is at least consoled that many of his staff have found other jobs.
The collapse of property services group Erinaceous was big news. It attracted plenty of headlines. It was a story of alleged fraud, breached banking covenants, profit warnings and finally administration.
But what was it like to live through the experience? And now the dust has settled what lessons are there to be learnt?
One of the many businesses taken over by Erinaceous, as it bought companies as if there was no tomorrow, was Birmingham-based John Nolan Associates, (JNA) a structural engineering consultancy.
It was run by husband and wife team John and Valerie Nolan and colleague Andy Williams.
Nolan describes it as a “painful roller coaster ride”, But above all he ses it as a betrayal.
“It is really the story of the power of the banks and how the little guy loses out,” says Nolan.
“Certainly, in the case of Erinaceous, you have to question its ethics and the legality of its actions. Were they, for example, in effect acting as shadow directors as the company unravelled? How, almost by magic, did all the valuable elements of Erinaceous end up in their hands?”
He contemplated suing, but couldn’t find a law firm that was not already working for the banks.
Erinaceous paid £12.6m for JNA in November 2006 – about 60 per cent of it in cash and the rest in loan notes and shares. It looked like a good move.
The Nolans had seen the downturn coming and were acutely conscious of ongoing consolidation in the sector.
They looked at the fast-growing Erinaceous and considered it as recession-proof as you could get. The money secured their future and was also spread around the staff. The bosses of Erinaceous promised backing to help build the Nolan operation within what became the consultancy services division.
“It should have worked had they not been such a bunch of incompetents,” he says. The owner-managers who had so readily sold to Erinaceous were soon leaving in droves, fed up of being marginalised and disillusioned by the autocratic nature of their new bosses. Quality companies became weak performers almost overnight.
The Nolans viewed the whole affair with dismay as Erinaceous, deeply in debt and whose shares were in the process of collapsing from 400p to nothing following scandal and failed takeover talks, gradually unravelled.
“I had six acquisitions lined up,” says Nolan. “They were all keen to come. Within three to four months it would have transformed our part of the business from 50 people to 500.”
But when Erinaceous started to hit problems he aborted the deals. “It was bad enough that we were in it – I didn’t feel it was right to drag others in, too.” Owed millions in loan notes, the Nolans could have opted to wind up the sorry conglomerate, but did not want the prospect of 5,000 job losses on their consciences.
So when the first loan note installment was due and Erinaceous could not pay they agreed to reschedule. It was against the advice of friends. “With hindsight it was a mistake,” admits Nolan.
A few more months passed by and now all the loan note payments were due, and, eventually, the Nolans were offered the whole consultancy services division for nothing in exchange for the debt.
They agreed, making arrangements to sell back the various parts to their original owners. They had ten days to get it sorted – Erinaceous had set a deadline of 11 April 2008.
“The contracts were agreed and I was sitting in my lawyer’s office, waiting to complete,” said Nolan. “Instead the lawyer came in and said ‘you are not going to believe this, but the administrators have just walked through the door’.”
KPMG had been appointed.
It left Nolan angry. “We felt extremely badly let down. We trusted that what they were telling us was the truth – you don’t put together a huge team of insolvency experts in a few hours.
” And not only that, they were landed with £250,000 in professional fees for the abortive transaction – costs they were led to believe would be covered by Erinaceous.
Then came the ignominy of all – a “tough deal” to purchase back the assets of JNA from the administrators.
“It was galling to have to buy back something Erinaceous had never fully paid for,” says Nolan. “It did not amount to what we sold it for, but it was still a substantial sum.”
In his 50s, did Nolan really want to throw himself back into the fray?
“I felt we had no option,” he says. “Many of our staff had been with us for 15 years. They are loyal, they are our friends.”
The new company, Nolan Associates, is doing well. The team is busy and the business is profitable. It has gone searching for work in the Middle East and is already setting up an office in Qatar.
The pair has no regrets at putting staff, clients and suppliers first.
They also accept, though, that when a company is collapsing around your ears and the banks are desperate to get what money back they can, trying to do the right thing in a dirty old game can cost you.
“But I have always relished a challenge,” adds Nolan.