Connaught, the stricken social housing maintenance firm, has appointed administrators after failing in a last-ditch attempt to secure further funding from its banks. In a statement to the stock exchange, Connaught said that efforts to find alternative funding had come to nothing: "Following extensive discussions with the group's secured lenders, it is now clear that sufficient support would not be extended to the group as a whole to enable it to continue trading as a going concern. As a consequence, the board is saddened to announce that it is in the process of appointing partners from KPMG as administrators of Connaught plc and its subsidiary, Connaught Partnerships Limited, which comprises its social housing division."
The company has faced a deepening crisis since a shock announcement in late June that its business would take a hit as councils deferred projects to upgrade their stock of social housing ahead of government spending cuts. Confidence in the business has rapidly melted away as questions were asked about the aggressive nature of Connaught's accounting policies. Its senior executives were replaced and it breached its banking covenants.Connaught has said that its cashflow problems were exacerbated by nervous suppliers and by subcontractors demanding upfront payment after the June profit warning.
Shares in the company, which have lost more than 90% of their value over the past three months, were suspended this morning. It also emerged that the Financial Services Authority has begun two separate inquiries into the firm, which manages everything from boiler replacement to litter collection and the refurbishment of community centres on housing estates.
KPMG, the accounting firm appointed as administrators, had previously been advising on a possible restructuring of Connaught's £220m debt. The plan now is to put the loss-making social housing part of the company into administration, while ringfencing Connaught's two other divisions: environmental, which includes forestry management, and compliance, which offers health and safety advisory services. The aim will be to transfer the social housing contracts to other suppliers as quickly as possible and then to wind the business down. Rival maintenance firm Mears said that it was ready to step in. "We are obviously in a position to pick up any work others are not able to complete," Bob Holt, Mears chairman, said.
It is not yet clear whether Connaught workers will transfer to a new employer, or whether their jobs will be under threat. The group employs 10,000 people, over half in the social housing business. The construction union Ucatt called for an urgent rethink of the way council services are delivered. Alan Ritchie, its general secretary, said that councils should take essential services such as housing maintenance back in-house: "Outsourcing is expensive and leads to poorer services. With private contractors, unlike council services, there is always a danger they could go out of business."
Sir Roy Gardner, who became Connaught's chairman in May, had remained bullish about its prospects, describing it as a "business worth fighting for". In July, he announced the departure of the company's founder and chief executive Mark Tincknell and finance director Stephen Hill and ordered an independent review of its accounting policy. Weeks later, the company admitted that after write-downs, it would do no better than break even this year; it had been forecasting profits of £60m only three months earlier.
Connaught's failure will set alarm bells ringing among other companies reliant on government contracts. The schools IT company RM Group has recently said that contracts worth £200m are at risk, while the construction firm Balfour Beatty and telecoms group Cable & Wireless Worldwide have also warned about the impact of spending cuts.
