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UK – Director buy-out for recruitment firm in administration

25 March 2014

The loss of two of its largest clients resulted in employment firm, Franklyn Recruitment, entering administration. Following the administration announcement, the North Somerset-based recruitment agency, which reported £9.6 million in turnover in 2012, was immediately bought back by its Directors for £120,000, reports insidermedia.com.

Franklyn Recruitment, which specialises in technical and engineering recruitment, collapsed on 3 February 2014 and insolvency practice Leonard Curtis was appointed administrator.

The company reportedly generated pre-tax profits of £211,000 following a turnover of £9.6 million in filed accounts for the year ending 31 March 2012. However, management accounts show it made pre-tax losses of £53,000 on a turnover of £8.4 million for the year ending 31 March 2013.

Franklyn Recruitment began trading in April 2010. Shortly after it started, the business bought a 30% stake in Norway-based company Stavanger Contracting & Engineering (SCE) with financial backing from Lloyds TSB Commercial Finance (LTSBCF).

According to a newly published statement of administrator's proposals, dated 12 March 2014, LTSBCF undertook an audit of SCE in January/February 2013. The audit uncovered substantial losses and, as a result, LTSBCF withdrew its funding line and merged the Norwegian debt into the company's facility.

The move reportedly had a significant impact upon Frankly Recruitment's cash flow. Consequently, it was forced to enter into a time-to-pay agreement with HM Revenue & Customs (HMRC) in September 2013 to arrange for the repayment of its liabilities.

Shortly afterwards, two of the company's largest customers entered administration and their collapse left Franklyn Recruitment with bad debts totalling £314,000. As a result, the employment agency was unable to meet the repayment obligations it had just agreed with HMRC.

The administrators said: "During this time, the company entered into a new debt financing facility with Bibby Financial Services in order to obtain a greater drawdown on its facility to assist with cash flow. Unfortunately, this did not generate sufficient cash to alleviate the company's problems in full.”

"Due to the size of the company's bad debts the directors were of the view that the company had no prospect of trading out of its difficulties and, accordingly, following an introduction from its current factors, Bibby, contacted Leonard Curtis for advice regarding insolvency."

Following their appointment, administrators oversaw the sale of the business and assets of Franklyn Recruitment for £120,000 in instalments on the same day.

The buyer was named as Abatec Recruitment, which has the same three directors as the company. The directors are Philip Davies, Richard Buchanan, and Stephen Doyle – Mr Davies is also Abatec Recruitment's sole shareholder.

All 27 members of staff, including its three directors, have been transferred to the new business so there are no outstanding claims from preferential creditors. The company's secured creditor, Bibby, is owed £1.2 million, which is expected to be repaid in full.

Unsecured creditors, meanwhile, are claiming a total of £547,610. However, the administrator's estimate suggests there will only be £193,824 available for distribution. As a result, unsecured creditors are facing a total shortfall of approximately £353,786.

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