Hope for Connaught workers as social housing giant collapses

Workers at social housing giant Connaught were warned of job losses today after the group collapsed into administration.

But KPMG - appointed as administrators for the main company, its subsidiary Connaught Partnerships and Connaught Technical Solutions - said it hoped to transfer the majority of staff to other providers along with ongoing contracts.

Exeter-headquartered repair and maintenance specialist Connaught employs around 4,400 staff at the social housing arm, which is the largest division placed in administration.

Regional bases affected by today's decision include those in Leeds, where Connaught Partnerships is based, Glasgow, Bromsgrove, Crawley and Essex.

More than 4,500 staff work at its other subsidiaries that have not been placed in administration - Connaught Compliance and Connaught Environment, which employ 1,800 and 2,700 respectively.

The administration of its main division has left around 280 contracts for councils and public sector bodies up in the air, as well as caused uncertainty for suppliers and contractors.

But KPMG said it was seeking to transfer contracts and was working with councils and housing associations to "minimise disruption to the public".

KPMG added: "The administrators are hopeful that the majority of staff will be transferred to alternative providers.

"However, to the extent that alternative providers do not take on employees then redundancies will need to be made. Decisions regarding redundancies will be announced as soon as possible."

It is also reviewing staff requirements at the head office and will announce any job losses as soon as possible.

Connaught was thrown into turmoil after warning in June that Government spending cuts could blow a £200 million hole in revenues over this year and next.

Bosses at Connaught held crunch talks with its lenders, led by taxpayer-backed Royal Bank of Scotland, and other potential financiers in a bid to keep the company afloat.

But it told investors late on Tuesday it was left with no option other than to start the process of administration after failing to secure further financing.

Richard Heis, restructuring partner at KPMG and joint administrator, said: "It became clear that the Partnerships business was no longer sustainable and had a substantial cash requirement significantly beyond its available lending facilities."

He added: "We will work closely with customers, employees, subcontractors and alternative providers to ensure services are maintained as far as possible and contracts and employees are transferred to alternative providers."

Connaught's Compliance and Environmental businesses continue to trade as normal and KMPG said it has received a number of expressions of interest for the two divisions.

Connaught, which started life in 1982 as a concrete repair specialist in Sidmouth, provides services to the environmental, social housing, public sector and compliance markets.

The firm employs around 10,000 people across all its divisions.

Until their suspension yesterday, the company's shares had fallen by more than 90%.

Its woes came to light in June when Connaught identified 31 projects where spending will be delayed as a result of austerity measures, wiping £80 million off revenues and £13 million from underlying profits in this financial year.

Sales and profits were also expected to fall by a further £120 million and £16 million respectively next year, it added. Connaught debts were estimated to be in region of £220 million.

Founder Mark Tincknell left the company earlier this year on health grounds less than six months into his second spell as chief executive.

Other major social housing providers expected to be in the frame to pick up Connaught contracts include Mears, Mitie and Rok.

Commenting on the situation at Connaught, David Hudson, Partner at Baker Tilly Restructuring and Recovery LLP, said: “This is a serious example of the knock-on impact of the spending cuts to suppliers announced back in May.

"The construction industry was particularly hard hit during the downturn, even now, the private sector is struggling to regain growth.

“It further unbalances the view that the UK is on its way out of the recession. The impact of the spending cuts with Connaught not only affected the building contractor itself but subcontractors and suppliers to it.

"Many contractors took advantage of TTP (Time to Pay) with HMRC during the down turn. Some may have also employed the use of CVAs (Company Voluntary Arrangements) to allow continuation of trade and for the survival of the business.

“However, due to the strain on HMRC and creditors, HMRC is coming under stricter guidelines in a situation where a company falls short due to default. The fate of Connaught sends a strong message to suppliers to the public sector and we expect to see more cases to follow.”