Collapsed social housing firm Connaught had a £42m black hole in its accounts, according to a report in this week’s Building magazine. Administrator KPMG found that £42.m of its £94.3m of work in progress was deemed irrecoverable.
The magazine also looks at why the banks rejected a three-year rescue plan put forward by the Connaught board. The plan required the RBS-led group of lenders to inject £50m within a month to keep the company , and was based on the assumption Connaught would make a profit of £17m on turnover of about £450m by year three.
One source close to the administration process told Building: “The banks realised those figures were optimistic. Another major flaw in the plan was that the Connaught name was already damaged.”
Meanwhile, Morgan Sindall’s Lovell arm is providing emergency repair work on the £17.5m deal Connaught started with Norwich council in April. Earlier this year, the deal was subject to a legal challenge by losing bidder Morrison, which alleged Connaught’s bid was “abnormally low”. According to sources, the job will make a £2m loss this year.
Question marks have been raised by some over the fact Morgan Sindall paid out £28m to buy 80% of Connught’s social housing contracts and related assets in a deal concluded last Thursday after a relatively short period of due diligence.
In Construction News, unnamed contractors that had been hoping to pick up some of Connaught’s work felt that the urgency of the administrator’s timescale left them without enough time to research the contracts, and therefore denied them the chance to bid.
But a Lovell spokesperson told Construction News: “It was an entrepreneurial deal and Morgan Sindall moved quickly. We carried out weeks of research before we went in to see the administrator.” Connaught first issued a profits warning in June.
In additions, many of its sub-contractors have been left with £40 million in unpaid invoices by Connaught’s collapse, amid fears they are unlikely to see more than 1 per cent of it.
Meanwhile a series of investigations could be also launched following the collapse. Connaught faces a Department of Business, Innovation and Skills investigation if evidence is found ness department investigation if evidence is found of wrongdoing. The Actuarial and Accountancy Discipline Board will decide “within weeks” whether to investigate auditors Pricewaterhouse Coopers.