Vaughan Engineering Limited (VEL), part of a major mechanical and electrical services company, has called in administrators KPMG after posting a £2.4m loss in the year to 31 March 2017.
VEL had already warned that its operations in Great Britain, which has bases in Edinburgh, Warrington and Newcastle, faced administration and the potential loss of around 160 jobs because it was owed £600,000 by Carillion for work it had already completed.
It had been contracted for a further £1.1m in work with Carillion for this quarter alone.
Now KPMG has confirmed that it has been appointed as administrator for Vaughan Engineering Limited.
The firm, which has a base in Broxburn, West Lothian, and also operates from sites in Newcastle and Warrington, is a subsidiary of the wider Vaughan Engineering group based in Belfast.
The wider group continues to trade as normal under the control of its directors.
KPMG said that difficult market trading conditions, coupled with a number of disputed contracts and write-downs over the course of 2016/17 resulted in a £12m drop in turnover in the space of just a year.
While VEL generated turnover of £50m in the year to 31 March 2016 with the majority of revenue relating to contracts with a small number of blue chip contractors in Scotland and the north of England, it brought in just £38m in the year to 31 March 2017.
That pushed the business into a £2.4m loss over the same period.
Most of the company’s 154 staff, comprising 83 at its base in Broxburn, 43 in Newcastle and 28 in Warrington, have been made redundant.
A small number have been retained across the three offices in the short term to assist with contracts.
Blair Nimmo, joint administrator and global head of restructuring for KPMG, said: “Unfortunately, while VEL was a leading company in its field, the business was unable to continue trading in light of cash flow and recent events within the challenging construction sector.
“As a result of the difficult financial position facing the company, we had no choice but to make the vast majority of employees redundant.
“We will be working with all affected employees and relevant government agencies to ensure a full range of support is available.
“We will also be exploring the possibility of securing a sale of the company’s assets and contract novation’s and would encourage any interested parties to contact us as soon as possible.”
Vaughan Engineering said it would not be issuing any further comment.
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If the construction industry practice was to have and use escrow accounts then perhaps the types of pack-of-cards collapses such as Carillion’s would not have such a knock-on affect. Secondly, businesses would have to budget and plan their cash-flow more carefully with their schedule of activities.
However, I suspect that old Carillion was borrowing short-term and effectively lending (albeit to the government through those UK based PFI schemes) but this has not been stated anywhere. However, I cannot be certain of this; because many overseas challenges were also reported.
So a second lesson is: that no business should be tempered in to large overseas programmes until they have developed the staff and the expertise to fully know the culture and business style where they plan to work. Very few advancing regimes and not every regime relies on advocacy as it is loved to be practised in the UK.
Directors should not rely on their limited UK experience accordingly, especially when it is so often and so strongly based on either accountancy and contract law. Most places need much more than that and especially they require ‘dynamic application of technology’, where the local representative has full, yes full, control.
Maybe Carillion tried to manage things from its UK Ivory Tower?
The [clever] directors perhaps need to go back to business school and learn to stick to basic rules.