Building firm in administration - and blaming RBS

mrposhman

devils_advocate wrote: »

Its all very well to have an order book of £90m, but it doesn't tell the whole story. If it costs £91m to deliver sales on that order book, that's a problem.

Not only that, if they are having cashflow problems BEFORE undertaking some of these projects they will not have enough to complete them as its highly likely in construction that the payment terms will be at worst 50% payable on completion of the job. If RBS gave some, then I have no doubt that Wrekin will be back in 6 months asking for more.

Frugaldom

johnycoldears wrote: »

I am (was?) a quantity surveyor for Wrekin.

Not much to add really other than our forward order book which was £40 million just got increased to £90 million yesterday. Looks like it's too late now and we're going down...

I guess it all boils down to balancing the books against cashflow and what costs are involved in servicing the £90million worth of orders. I'm thinking back to the Costain / Costain Dow Mac / Tarmac scenario in the late 90's.

With regards to mention of potential DE / MOD works, those tenders would have been submitted months, possibly even a year or more ago, so works commencing soon/now will already have been taken care of on accounts of the length of time it takes to get all the security clearances for the contractors and sub-contractors. I'd be interested in finding out who is mopping up the orders in the wake of Wrekin's situation.

Edited in: It looks like Wrekin were possibly sub-contracting to Carillion. If this was the case then the DE contracts wouldn't necessarily mean 'money in the bank' as they are dependent on works being signed off by Carillion who, in turn, need the works signed off by whoever handles facilities management for DE on the project. That adds extra links in the chain. Just thought it was worth considering the possibilities as, in my personal opinion, it looks like a very different scenario from just a simple 'blame the bank' case.

Debt_Monkey_3

The press seem to be just using this company to have a go at RBS. The problem is not many people would know the reasons for the insolvency until the administrator does his report to creditors. Whilst the company only wanted a few million more, and had orders of £90 million, the company made a loss last year of £9 million in 2007 on turnover of £100 million. It probably made a loss in 2008 and had substantial other creditors apart from the bank. Pulling the plug on the company was probably the right thing to do.

Cannon_Fodder

Debt_Monkey wrote: »

...the company made a loss last year of £9 million in 2007 on turnover of £100 million. It probably made a loss in 2008 and had substantial other creditors apart from the bank. Pulling the plug on the company was probably the right thing to do.

what figure do the losses of RBS have to be, to count as "a sensible time to pull the plug" ?

...pre-tax losses of £40 billion in 2008.

Debt_Monkey_3

The failure of this company is not about whether it was right or not to bail out RBS.

This is about whether Wrekin was a viable going concern. If it is somebody will buy it off the administrator, if it isnt it will cease trading.

Pennywise

Debt_Monkey wrote: »

The press seem to be just using this company to have a go at RBS. The problem is not many people would know the reasons for the insolvency until the administrator does his report to creditors. Whilst the company only wanted a few million more, and had orders of £90 million, the company made a loss last year of £9 million in 2007 on turnover of £100 million. It probably made a loss in 2008 and had substantial other creditors apart from the bank. Pulling the plug on the company was probably the right thing to do.

devils_advocate wrote: »

Its all very well to have an order book of £90m, but it doesn't tell the whole story. If it costs £91m to deliver sales on that order book, that's a problem.

I'd be interested in knowing all the relevant information that isn't in the public domain. Just how well as the business been run in the past? Has it defaulted on previous loans? Has it exceeded its approved overdraft limit without authorisation? Have its previous forecasts been proved to be accurate or just a fabrication? An order book means nothing on its own. Turnover is vanity, profit is sanity - making a loss of £9m on turnover of £100m is quite pathetic in times of a booming economy - if it can't make money when times are good, what hope does it have when times are bad.

From my own experience as a practising accountant, banks ARE lending, but they're a lot more careful now about who they're lending to. They've gone back in time 20-30 years and are now only lending to what they perceive are good risks, i.e. sound business plan, security, good credit history, affordability of repayments, etc. In the last few months, I've seen more clients get the finance they want than I've seen clients who've been refused - I can't deny that it's harder now and that more "boxes have to be ticked" but to say that banks aren't lending is just not true. In fact, this kind of media scaremongering is doing more harm than good. I've had a couple of clients who have believed the media and havn't even approached their banks for additional funds - in both cases I've told them the same as I'm saying here, and in both cases, the bank granted the facilities they needed.

mvengemvenge

Pennywise wrote: »

From my own experience as a practising accountant, banks ARE lending, but they're a lot more careful now about who they're lending to. They've gone back in time 20-30 years and are now only lending to what they perceive are good risks, i.e. sound business plan, security, good credit history, affordability of repayments, etc. In the last few months, I've seen more clients get the finance they want than I've seen clients who've been refused - I can't deny that it's harder now and that more "boxes have to be ticked" but to say that banks aren't lending is just not true. In fact, this kind of media scaremongering is doing more harm than good. I've had a couple of clients who have believed the media and havn't even approached their banks for additional funds - in both cases I've told them the same as I'm saying here, and in both cases, the bank granted the facilities they needed.

That's quite interesting. Why aren't we hearing more about this? I think that people have just become so used to easy money, that when the bank apply more stringent conditions to lending, they're surprised at how un-credit-worthy they actually are. I think the penny just hasn't dropped yet for a nation addicted to debt. We could be in for a painful few years

Alan_M_2

Pennywise wrote: »

I'd be interested in knowing all the relevant information that isn't in the public domain. Just how well as the business been run in the past? Has it defaulted on previous loans? Has it exceeded its approved overdraft limit without authorisation? Have its previous forecasts been proved to be accurate or just a fabrication? An order book means nothing on its own. Turnover is vanity, profit is sanity - making a loss of £9m on turnover of £100m is quite pathetic in times of a booming economy - if it can't make money when times are good, what hope does it have when times are bad.

From my own experience as a practicing accountant, banks ARE lending, but they're a lot more careful now about who they're lending to. They've gone back in time 20-30 years and are now only lending to what they perceive are good risks, i.e. sound business plan, security, good credit history, affordability of repayments, etc. In the last few months, I've seen more clients get the finance they want than I've seen clients who've been refused - I can't deny that it's harder now and that more "boxes have to be ticked" but to say that banks aren't lending is just not true. In fact, this kind of media scaremongering is doing more harm than good. I've had a couple of clients who have believed the media and havn't even approached their banks for additional funds - in both cases I've told them the same as I'm saying here, and in both cases, the bank granted the facilities they needed.

I'm not denying lending is taking place and their will always be viable businesses, it's the withdrawal of facilities that's doing more harm. Maybe if I'm more specific about my case it will make more sense.

I own a business, I'm confident enough about my business that I put the family home on the line and secured our lending against it.

Things have been tough but we've traded through and business has picked up dramatically in the last month. We now need to restock...the problem there is our overdraft is being called in.....

The reason it's being called in is the drop in value of property. My bank LloydsTSB now don't consider my house as enough security to cover the lending (which they are now calculating at 50% of current value less mortgage) so they want their overdraft back.

We are trading nicely, we have a nice book of orders coming through we need to buy stock but we can't...we can either pay back the overdraft or reorder but not both at the same time. This will shut us down......

Ok no problem...we pay the bank back we shut and we start again....well it's not that easy, I'm bound to a lease on a building, I have contract hire equipment and vehicles etc etc......it's these bits and pieces that cause the problems, even though we are solvent and trading and have future profitable trading with firm orders the banks actions make us insolvent by default.

Ok so I apply for the EFG....details here:-

http://www.berr.gov.uk/whatwedo/enterprise/enterprisesmes/info-business-owners/access-to-finance/sflg/page50308.html

Which is designed to cover this very problem, if you note the three main reasons for lending as follows:-

The Enterprise Finance Guarantee may be used to enable three types of lending:

• a new term loan, either unsecured or partially secured;
• a new term loan specifically for the purpose of transferring long term debt out of an overdraft in order to release capacity in the overdraft;
• the refinancing of an existing secured loan which would otherwise be withdrawn due to deterioration in the quality of the security.

Great, this is EXACTLY the position we're in... well that;s how it reads to me....

I quote an email from my bank manager this morning:-

Also contrary to your last email the EFG cannot be used to guarantee the overdraft – it is for loans only.
I have also clarified that the existing loan cannot be taken into the EFG Scheme. This is for exceptional situations only which is not covered by this position.

The thing is, I have no form of redress...it's provide more security or pay it back....There's no point taking this to my MP as it's clearly stated that the banks are fully in control of when and to whom they lend and they are also free to interpret the terms of the EFG as they wish, which is why you get a different set of parameters from different banks.

The way LloydsTSB have interpreted the EFG is by classifying overdrafts separately to loans..therefore according to LloydsTSB and overdraft is not a loan and falls outside the parameters of the EFG scheme.

I'm not actually asking for my bank to lend me any more money, I'm asking them to leave us as we are, paying on time, running our account within the parameters agreed as we have done for years...but due to the "Credit crunch" we are being actively closed down by our bank.

It's these actions causing more problems to businesses nationwide than not being able to offer extra funds...most companies just want t heir existing facilities left in place, which for many years have been operating quite healthily.

Where is the benefit of actively closing solvent businesses in this manner?

boyse7en

This is about whether Wrekin was a viable going concern. If it is somebody will buy it off the administrator, if it isnt it will cease trading

But where will any company get the money to buy it from the administrator? If RBS won't extend it credit as a going company, what bank is going to lend enough money to buy it and keep its cashflow reasonable?

Frugaldom

Alan_M wrote: »

Where is the benefit of actively closing solvent businesses in this manner?

Let's be brutally honest here, is a business technically 100% 'solvent' if it's trading is reliant on the bank's money? It's a bit like saying you're debt free and then using a mortgage to buy a house - the house is never yours until it's paid for in full.