Drowning in debt

Chris Orr is perplexed by Unwins’ accounts

Wow. That’s going some on the part of Unwins to rack up £42.4m in debts by the time it went into administration in December. I mean, you’ve really got to go some to hit those levels of debt in the space of six months, from the time the company was bought in the summer to the end of the year.

The administrators have already called in internal forensic accountants – the equivalent of having a combination of Quincy and Cracker on your case – to investigate the banking of Unwins takings in DM Private Equity bank accounts prior to administration. For his part Phillip Cook, the chairman of DM Private Equity told the Sunday Times that money had been moved “because of extremely high levels of theft at Unwins”.  He is allegedly planning to sue Grant Thornton, the former auditors for Unwins, along with directors and shareholders. He has claimed that the company was effectively insolvent in trading terms, prior to when he bought it for £32m from the Wetz family.

But we’re talking about £42.5m! I don’t usually use exclamation marks but I am making an exception in this case. If you take over a company and the debts are at that level, but they’d been kept from you – do you really wait six months to put it into administration and then sue? I’m not a financial genius, but I reckon that it would only take me a couple of weeks to get the gist of the level of poor trading in a company and the debts owed – even if it wasn’t down to the last …er … well million I guess.

So how come nobody noticed? Or at least took so long to find this out? For one, everyone in the trade knew that Unwins wasn’t in exactly what one would call a healthy state when it was sold – surely some level of debt would have been evident? More importantly there are simple checks one can make, and requirements one can make of outgoing directors. Take, for example, VAT and PAYE. The company apparently owed £7.9m to Customs and Excise in this regard. This is a pretty standard enquiry for the purchase of a new company – and whatever lack of due care Grant Thornton are or are not accused of, I’d be incredibly surprised if they were unable to spot or detect £7.9m payable to Customs and Excise.

More importantly anyone who has run a business, small or large, knows that there are essentially two bills you don’t get caught with your proverbial pants down on – and that’s VAT and PAYE. And why? Well, it’s simple really. As a director you might be able to walk away from many debts when a company goes bust, but you don’t walk away from VAT or PAYE. Our lovely Customs & Excise men have the ability to hold you personally responsible for the repayment of such debts, regardless of whether the company has any assets, income or otherwise. So £7.9m on bills that are actually payable (by law and with stiff penalties if not missed) usually monthly, but at most quarterly, seems astonishing. In fact, it seems like someone’s worked very actively and hard to screw that one up.

So, the debt from Unwins is mammoth. Depending on who you believe, either the former directors of Unwins pre-sale or the directors post-sale are apparently to blame. One way or another, with the way white collared crime is viewed these days, someone, somewhere high up the ladder will be found to be at fault – and pay the consequences. And hundreds of staff have had their livelihood, pensions and relatively stable future, dashed. Is there a winner in this sorry tale at all. Well, yes I think there probably is. The previous Unwins before DM Private Equity, was always joked to be more of a property development and holding company than an actual wine shop. DM Equity’s move to finance its purchase through selling off the freeholdings and buying them back may have seemed like a good idea at the time, but in the long run, I think was pretty disastrous for the company as a whole. But whoever bought the freeholds to the property, is probably reasonably happy by now. Sure they have to find a few new leaseholders, but most of the properties are pretty prime. What’s more, any inability to pay the leasehold rent by Unwins is sure to trigger an automatic default, returning the leasehold to the freehold owners. Which will make them very, very happy indeed, I should imagine. Well, at least one person has managed to profit from the whole sorry mess…

Chis Orr  db   23rd February 2006