Grant Thornton named administrator for 'Welsh Carillion' Dawnus

22 March 2019 Consultancy.uk

Following the collapse of Cardiff-headquartered outsourcing firm Dawnus Group, the firm has been compared to failed contractor Carillion, while 700 workers have lost their jobs. Grant Thornton has been installed as administrator to the collapsed firm to oversee the sale of its remaining assets.

Dawnus Group, a major construction firm based in Swansea with 6 regional offices and 44 construction sites, has confirmed it is under administration, resulting in 700 people losing their jobs. The group operated throughout the UK, from six regional offices and 44 construction sites.

Alistair Wardell, Matthew Richards and Philip Stephenson of Grant Thornton UK were appointed joint administrators of the UK operations of Dawnus in the middle of March 2019. Their appointment covers all the branches of the Dawnus Group, with the exception of the international operations of the network, Dawnus International, Dawnus Sierra Leone or Dawnus Liberia.

Grant Thornton named administrator for 'Welsh Carillion' Dawnus

According to the administrators, the group succumbed to pressures resulting from a broader downturn in the construction industry. Construction played host to some 3,940 insolvencies throughout 2018, as even while demand for new homes across the UK boomed, it was plagued by Brexit pressures and an economy plagued by sluggish productivity.  They added that while the financial difficulties of the group were not a direct consequence of Brexit, there is “no doubt” that the enduring uncertainty surrounding the UK’s withdrawal from the EU – just days before its final deadline – had impacted the ability to rescue the business.

Grant Thornton restructuring Partner Alistair Wardell said, “The Dawnus Group has struggled with a wide variety of challenges and despite significant efforts to turn the business around, unfortunately it has not been possible to rescue the group. As a consequence, the future cash flows have meant that the business was not in a position to continue to operate, including completing existing work in progress… Our priority is to work with management to ensure that any impact on customers, employees and creditors, including subcontractors, is minimised.”

Cardiff-based Dawnus has been described in some quarters as ‘the Welsh Carillion.’ When a keystone company goes belly-up in this manner, it often has a ripple effect on the broader supply chain, as seen with Carillion. Members of the National Assembly of Wales were quick to note that initial analysis of supply chain creditors indicates that there are in the region of 455 Welsh suppliers which will be affected.

‘Welsh Carillion’

Joyce Watson, AM for Labour in Mid & West Wales, asked for a statement from the Welsh Government, saying, “...When a large company like Dawnus does go into administration, it puts smaller, local businesses at risk, potentially having a devastating impact on those local economies. We know that they directly employ 700 people – and that’s a large number in and of itself – but there is a much larger potential number within the locality, as I’ve just described. These are not just numbers of people, but real families being affected by this collapse.”

Watson then listed a number of public sector projects affected by the news, including four school projects and a new road in Fishguard. Welsh Economy Minister Ken Skates told the Assembly that the Welsh Government stood ready to help employees, but stated that he made “no apology” for providing the company with support in regard to the many public contracts it had won in the lead up to its collapse.

Not everyone was entirely pessimistic in the fallout of Dawnus’ collapse, however. While employees now face an anxious period of adjustment, and a scramble to find gainful employment to keep their heads above water, Lyndon Wood, CEO, Moorhouse Group, suggested there was a silver lining for them.

Wood said, “This is a very difficult time for all employees of the Dawnus Group. If there is a positive to be taken out of this it is probably that these highly-skilled tradespeople now have the opportunity to become self-employed and further increase their earnings. Recent reports state that post-Brexit Britain could see a slumber in the skilled labour force – highly-skilled tradespeople such as Dawnus Group employees now have the potential to fill that gap.”

According to the Office of National Statistics, the average annual salary of an electrician in the UK is £30,765 per year, while a plumber earns £29,136. By becoming self-employed, at present, experienced electricians can earn up to £35,000, while plumbers could charge up to £90 an hour, and potentially make £1,000 each week.

While Moorhouse’s CEO might point to the potential money self-employed workers could make in the present economy, however, this neglects the potential impact Brexit will have on the jobs market. Professionals operating in the gig economy feel more vulnerable than their directly employed counterparts in the lead-up to Brexit. Without any permanent contract to secure rights to benefits – including a redundancy package – contractors and those who are self-employed feel much more negative about Brexit this year than in 2018. When asked ‘How do you think Brexit will affect your current employment?’, a recent survey found an increase of pessimism by more than 50% amongst contractors expecting a negative impact than in 2018, and a 33% increase in those who are self-employed expecting a negative impact.

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Debenhams administrator handed legal threat from Sports Direct

24 April 2019 Consultancy.uk

Earlier in April 2019, the long-suffering high street entity of Debenhams finally collapsed into a pre-pack administration, wiping out equity for shareholders including Sports Direct. Now, Mike Ashley, the controversial owner of Sports Direct, has threatened legal action to remove FTI Consulting from its role as Debenhams’ administrators, following the obliteration of his stock in the company.

As the retail sector in the UK continues to endure a torrid period, British retail stalwart Debenhams endured a spectacular fall from grace. The high street ever-present was founded in the early 19th century, with a single store in London, before expanding to 178 locations across the UK, Ireland and Denmark. However, following a string of profit warnings and several rounds of lay-offs, the company engaged advisors from Big Four firm KPMG to consider its options in the Autumn of 2018.

At the time, Debenhams Chairman Sir Ian Cheshire insisted that the chain was not heading for insolvency, or that it was actively embarking on a company voluntary agreement (CVA). Nevertheless, Debenhams fell into administration in Spring 2019. The news saw Chad Griffin, Simon Kirkhope and Andrew Johnson of FTI Consulting appointed as joint administrators, immediately selling the retailer to a newly incorporated company controlled by secured lenders.

Debenhams administrator handed legal threat from Sports Direct

The pre-pack administration deal meant Debenhams was able to access significant additional funding, preserving 165 of its stores, though plans to close around 50 under-performing stores in the next three to five years remain in place. At the same time, the deal maintained its commercial relationships with suppliers, employees and pension holders. However, it also effectively led all of Debenhams’ previous shareholders – including the retail magnate Mike Ashley – to lose their equity.

Ashley’s Sports Direct firm had increased its stake in the department store chain in 2018, but stopped just short of the 30% stake which would require it to put in a formal offer to fully acquire the business. The transaction fuelled speculation that Ashley was waiting for the opportune time to acquire Debenhams, particularly in the wake of his swoop for House of Fraser. Ashley’s deal there enabled Sports Direct to buy the firm out of administration in a pre-pack deal, allowing the new ownership to controversially wash its hands of the company’s pension scheme in the process.

While some believed this was Ashley’s intent for Debenhams, FTI’s decision to sell the store to its creditors has instead resulted in a sizeable loss for Ashley. The hit of around £150 million from his loss in Debenhams comes after an analysis by The Sunday Telegraph suggested the tycoon had accrued “a sprawling web of stakes” in rival companies, and that he may be nursing losses of more than £500 million.

Bad press

Ashley – who recently lost a complaint ruling by British press regulator Ipso allowing the Times to note that he shared many characteristics with North Korean dictator Kim Jong-un – has been outspoken in his contempt for FTI since the news broke of Debenhams’ sale. The Sports Direct CEO has called for the resignation of FTI from its role as administrator, after his stake in the department store chain was wiped out. The Guardian stated that a letter to FTI saw Sports Direct’s lawyers even threaten legal action to remove the advisory firm as administrators because of a conflict of interests.

According to the reports, the document claimed, “[Sports Direct] will do everything available to it to unwind the damage caused to the company and other stakeholders (including large and small shareholders) by the events of today including but not limited to challenging the appointment [of FTI as administrators] and all consequences of it.”

The letter allegedly claims that FTI had been involved with Debenhams since the second week of February, and had engaged with the group’s lenders. The legal team reportedly suggested that this would consistute a conflict of interest, because FTI sold the retailer’s operating companies to the same lenders via a pre-pack administration.

This comes weeks after Sports Direct was itself accused of becoming overly cosy with a professional services firm, which has seen its auditor Grant Thornton placed under scrutiny for its continued role with the firm. In 2018, it was reported that Grant Thornton was set to stand aside from the role due to competition rules. It had held the role since before Sports Direct floated on the London Stock Exchange in 2007, while Phil Westerman, the Partner at Grant Thornton responsible for signing off Sports Direct's accounts, had himself undertaken the work for five years. 

Neither situation is understood to have changed, leading to the questioning of the independence of Grant Thornton’s auditing work with Sports Direct. Such is the level of bad press surrounding the retailer, that the Big Four of the accounting and advisory world – wary of incurring a new scandal of their own – are said to have ruled out taking the contract over.