North East construction company Owen Pugh Group owed creditors £7.6M when it collapsed, a report has revealed.
The main secured lender HSBC was owed £6.3M, following the administration of Owen Pugh Holdings Limited.
A total of 289 workers were employed by the company when it entered administration in October. The decision was made to cease trading on the afternoon of the administrator’s appointment on 11 October.
The creditors report by Grant Thornton said: “There is no single project or event that can be highlighted as leading to the failure of the Company and the Group, but, as larger and more complex civil engineering projects were undertaken, which was the Group’s strategy, the level of working capital required to continue trading increased, particularly as the Group encountered problems in recovering payment from customers for work performed, which was often disputed by the end customer.”
Grant Thornton was brought in by the group in September 2014 to undertake a covenant and cash flow review. It was then asked to do a follow-up assignment in January last year, before being engaged to do a further review in April this year.
Despite the support of HSBC bank, Merino Industries Ltd and a Time To Pay Agreement with HM Revenue and Customs, “the group remained in a highly distressed state”, administrators said.
Some Owen Pugh customers were not supportive, complaining about work quality in the pre-administration period and a number of the largest customers had “antcicipated failure” and had alternative suppliers in place when the company collapsed.
In October, former chair of the group John Dickson, who lost his home as a result of the company’s financial problems, told the Newcastle Evening Chronicle that ”bullying tactics” from some main contractors and bad luck were to blame.
“I’ve gone through three years of absolute hell trying to keep the business going and I’ve done everything I possibly could to make things work but it’s not been enough. We’ve had the most extraordinary bad luck and this is a particularly tough industry at a particularly tough time,” he told the paper.
“I have to say that some of the companies we’ve worked for have shown a complete lack of moral scruples. Some of the main contractors are often just bullies.
“In most industries you will put in an invoice for your work and expect to be paid for 95% of it; we were sometimes getting 10 or 15%. The law allows companies to do that and there’s no incentive to behave properly. We could go to adjudication, but it would cost us £50,000 before it even started and all we’d get back is the original sum. There’s no penalty for the bad behaviour.
“This doesn’t happen in other countries and it doesn’t happen in other industries. It’s a thing that happens in construction.”
The privately owned group provided civil engineering, training, testing, drainage and plant hire services.