Was AVRO trading illegally or fraudulently for the last 2+ years? Was it like a Ponzi Scheme?

indigoben

ihatetrump said:

@indigoben

Against this, in the coming year they had calculated that they would need to pay out £98.3m leaving a difference of £27.5m to find. Given their stated growth from 2017 to 2019 saw them basically doubling in size, it's not unreasonable to consider that they would have grown the customer base enough to cover that difference.

They look like they were essentially trading on credit, but their cashflow was fine. That is not unreasonable for a growing company - credit is what allows businesses and economies to grow. Ultimately the energy generators are going to absorb the loss as they have supplied energy that isn't going to get paid for. But that was their risk.

Of course many businesses exist on credit - however, any sound business would have have established that credit in one of the following ways:

1. Shareholder Equity

2. Shareholder Loans or 

3. Bank Loans with established repayment terms and stress tested (ability to repay out of earnings).

To use customer advance payments and to expect those payments to continue to grow is not by any stretch of the imagination a viable method of credit.

Lots of businesses have supplier credit - perhaps even the majority. Corner shops buy in stock from distributors on credit - they rely on footfall to buy those products so they can in turn pay back the distributors. Bigger companies do it at a bigger scale - large supermarkets are well known for buying huge amounts of stock and forcing suppliers to accept 90-day credit terms. The clothing industry does it with their suppliers, as do car manufacturers, technology firms etc. Not all of these have the cash in the bank to cover those debts - they are relying on being able to sell the products in time to pay off the debt.

Avro seem to be relying on growth in the customer book to cover their future commitments. That does have a risk and it may well be that they were selling energy too cheaply in order to grow the customer base. But as far as I'm aware that's not illegal - in fact it's pretty much typical startup behaviour. I'm not saying Avro weren't doing anything wrong (at least technically, morality is another thing). But I don't believe it is clear from the accounts that they were.

I do agree that there should be ringfencing of customer money as a matter of principle. But again, in this case with £18.5m in the bank and I assume OFGEM have first call on that money I don't think it would change anything in this case. Certainly at that point, the money was there.

jimjames

indigoben said:

ihatetrump said:

@indigoben

Against this, in the coming year they had calculated that they would need to pay out £98.3m leaving a difference of £27.5m to find. Given their stated growth from 2017 to 2019 saw them basically doubling in size, it's not unreasonable to consider that they would have grown the customer base enough to cover that difference.

They look like they were essentially trading on credit, but their cashflow was fine. That is not unreasonable for a growing company - credit is what allows businesses and economies to grow. Ultimately the energy generators are going to absorb the loss as they have supplied energy that isn't going to get paid for. But that was their risk.

Of course many businesses exist on credit - however, any sound business would have have established that credit in one of the following ways:

1. Shareholder Equity

2. Shareholder Loans or 

3. Bank Loans with established repayment terms and stress tested (ability to repay out of earnings).

To use customer advance payments and to expect those payments to continue to grow is not by any stretch of the imagination a viable method of credit.

I do agree that there should be ringfencing of customer money as a matter of principle. But again, in this case with £18.5m in the bank and I assume OFGEM have first call on that money I don't think it would change anything in this case. Certainly at that point, the money was there.

£18.5m in the bank was almost 2 years ago, who knows what it is now as they've delayed filing their accounts by a loophole on Companies House. I suspect there probably isn't much in the bank now though.

indigoben

jimjames said:

indigoben said:

I do agree that there should be ringfencing of customer money as a matter of principle. But again, in this case with £18.5m in the bank and I assume OFGEM have first call on that money I don't think it would change anything in this case. Certainly at that point, the money was there.

£18.5m in the bank was almost 2 years ago, who knows what it is now as they've delayed filing their accounts by a loophole on Companies House. I suspect there probably isn't much in the bank now though.

Well certainly we don't know what happened after that point, they may well have more funds available. They've delayed filing accounts, but there may be perfectly good reasons for that. I'm a director of a company that had an extension last year - everyone got one automatically. In fact I'm trying to sort out our accounts at the moment, and our accountants are snowed under due to COVID issues.

tim_p

Whatever happens to Avro customers I think we can be pretty sure that the owners / directors / whatever won’t be hit in the pocket, unlike the customers.
If other recent posts on the subject are anything to go by then the whole system needs a kick up the backside to prevent this happening again.

carlh93sky.com

Re jimjames's suspicions.

I joined Avro on 31/12/2020 on a fixed-tariiff/fixed term (1 year) contract.

I made my first monthly D/D payment in advance (as required) on 22/12/2020. This mode of payment continued to date, with the next D/D due of 24/09/2021

I run a spreadsheet to monitor my energy consumption and costs. Annual consumptions are calculated each month from meter readings taken at that time. The history goes back a good few years.

My s/sheet can't look forward like an energy company's software. It calculates consumptions for the year ending on the last day of each month. So It is an indicator of likely forward consumption on the basis of past consumption. This estimate gets increasingly accurate as the number of past months on a given contract increases.

On the basis of my own data, in January 2021 I emailed Avro (no phone support) requesting to increase my D/D from February 2021. This was done.

Until the plug was pulled yesterday, I saw, on the last day of each month when I entered meter readings, the balance of my account. This reflected my payment total to date, with no deductions for costs. No monthly statements were available at any time, up to and including yesterday.

I did think this strange, and, with hindsight, I should have queried it. But Avro had a good rating in Which? customer service etc surveys, so I did not worry. .

I should now (in due course!) be moved to another energy firm because my account number must prove that I am an Avro customer. Should I be informed by the liquidator that there is no record of payments or charges against my account number, I can supply proof of all nine D/D payments made (the ninth is due on 24th September 2021, covering the period 1 to 31 October 2021)). Actual consumptions and costs are easily calculated by me, or anyone else with modest arithmetic capability, by deducting the start readings that I supplied to Avro on 31/12/2020, and of which I have a record, from final readings at whatever date the liquidator requires..

The outcome should be a small credit balance - probably under £30.

However, if Avro has no assets and has not ring-fenced any credit balances left after a customer's payments-in, what then? Who will pay my charges since 31/12/2020 and (a rather lesser sum!) refund any closing credit balance which is due to me?

indigoben

carlh93sky.com said:

Re jimjames's suspicions.

However, if Avro has no assets and has not ring-fenced any credit balances left after a customer's payments-in, what then? Who will pay my charges since 31/12/2020 and (a rather lesser sum!) refund any closing credit balance which is due to me?

Any credit with the supplier is protected under OFGEM rules. When the accounts transfer to a new supplier, then that new supplier picks up the balance, and you can claim it back from them.

Make sure you have meter readings so that they can then correct any discrepancy.

Sea_Shell

indigoben said:

carlh93sky.com said:

Re jimjames's suspicions.

However, if Avro has no assets and has not ring-fenced any credit balances left after a customer's payments-in, what then? Who will pay my charges since 31/12/2020 and (a rather lesser sum!) refund any closing credit balance which is due to me?

Any credit with the supplier is protected under OFGEM rules. When the accounts transfer to a new supplier, then that new supplier picks up the balance, and you can claim it back from them.

Make sure you have meter readings so that they can then correct any discrepancy.

AIUI The "liability" for the credit is transferred to the new supplier. 

I doubt any actual money changes hands.

indigoben

Sea_Shell said:

indigoben said:

carlh93sky.com said:

Re jimjames's suspicions.

However, if Avro has no assets and has not ring-fenced any credit balances left after a customer's payments-in, what then? Who will pay my charges since 31/12/2020 and (a rather lesser sum!) refund any closing credit balance which is due to me?

Any credit with the supplier is protected under OFGEM rules. When the accounts transfer to a new supplier, then that new supplier picks up the balance, and you can claim it back from them.

Make sure you have meter readings so that they can then correct any discrepancy.

AIUI The "liability" for the credit is transferred to the new supplier. 

I doubt any actual money changes hands.

If you are going to be pedantic, I never said it was transferred. I said it was protected under OFGEM rules, and that the account (ie. the name, address, MPAN, balance, etc) was transferred to the new supplier. So I don't believe I've said anything incorrect.

Sea_Shell

indigoben said:

Sea_Shell said:

indigoben said:

carlh93sky.com said:

Re jimjames's suspicions.

However, if Avro has no assets and has not ring-fenced any credit balances left after a customer's payments-in, what then? Who will pay my charges since 31/12/2020 and (a rather lesser sum!) refund any closing credit balance which is due to me?

Any credit with the supplier is protected under OFGEM rules. When the accounts transfer to a new supplier, then that new supplier picks up the balance, and you can claim it back from them.

Make sure you have meter readings so that they can then correct any discrepancy.

AIUI The "liability" for the credit is transferred to the new supplier. 

I doubt any actual money changes hands.

If you are going to be pedantic, I never said it was transferred. I said it was protected under OFGEM rules, and that the account (ie. the name, address, MPAN, balance, etc) was transferred to the new supplier. So I don't believe I've said anything incorrect.

No you're not wrong, it's just that it seems a lot of people think that their credit is being held, as cash, in a separate account.

BobT36

jimjames said:

BobT36 said:

Sounds to me like the goal was never to make "profit", it was to run a ponzi scheme with customer's advance payments, and make (the owner's) money by siphoning funds out via loans and "marketing services" (to a separate company that they also own). 

Surely that can't be legal? The owner apparently did study law so maybe it's a loophole. 

I've commented elsewhere but it's a tactic used by many mini bond companies to extract cash so when the company folds they've got their money out. Much the same as the accounting trick to adjust the date to delay filing for another 3 months to avoid scrutiny.

Indeed, this is the bigger issue for me, less so them using advance payments, it's what they were using them FOR. As they couldn't legally pay themselves dividends, they've just got the money out via "Director loans" and "Marketing Services". How the heck is that legal? Trouble extracting money from your failing company? Just set up a separate "marketing" company, have it do !!!!!! all work, but charge millions for it, job done. it wasn't even owned by one of their mates as is usually done!