黑洞社区

Tomorrow the creditors for PC Harrington Contractors will meet to attempt to discover just what can be salvaged from the wreckage of one of the biggest concrete specialists in the UK, which collapsed into administration at the start of May. Responsible for the formwork on high-profile projects from 20 Fenchurch Street 鈥� the Walkie Talkie 鈥� to Wembley Stadium, the 拢65m turnover firm built a reputation over almost 50 years as both one of the most respected but also one of the more media-shy major firms in the industry.

PC Harrington Contractors (PCHC) is the biggest part of the 拢114m turnover PC Harrington Group. The group鈥檚 founder, 77 year-old Patrick Christopher Harrington, has kept out of the media spotlight, with the company routinely refusing to answer media enquiries made over phone or email. This determinedly low profile meant the growing problems facing the family-run PCHC (four of nine directors at the time of administration had the surname Harrington) were largely kept out of the public eye. But now an unpublished document from PCHC鈥檚 administrator, KPMG, seen exclusively by 黑洞社区, as well as statutory information on the firm and other firms in the Harrington group of companies - most of which are still trading 鈥� makes it possible to piece together the story of PCHC鈥檚 demise. The documents reveal that PCHC, which was working on major contracts including Land Securities鈥� 拢400m Nova Victoria scheme, fell from grace so severely that by the time KPMG was finally appointed administrator on 8 May, the firm owed its suppliers 拢12m, but had just 拢900 of cash in the bank. The documents also shed light on a group with a structure in which all of PCHC鈥檚 employees were actually employed by an unrelated firm owned by the Harrington family.

As with most contractors that went under during the seven long years since the financial collapse in 2008, the demise of PCHC had its roots in particular jobs. A Joint Administrators鈥� proposals document, sent to creditors on 4 June and seen by 黑洞社区, states baldly that 鈥渋n recent times the company experienced contract disputes and suffered losses on a number of major contracts鈥�. Neither this report nor PCHC鈥檚 statements to Companies House name which jobs were responsible for the company鈥檚 initial cash-flow difficulties, and when contacted, a spokesperson for the administrator KPMG declined to comment. However, PCHC worked on a number of schemes which are known to have experienced difficulties. These include the 拢150m Design Museum鈥檚 new home at the former Commonwealth Institute, the opening of which has been delayed by a year with the museum blaming the 鈥渃omplexity of the renovation鈥� of the building. PCHC also worked on the 拢200m Fitzroy Place job, which the scheme鈥檚 overall contractor Sir Robert McAlpine has already admitted made a major contribution to its recent near 拢100m loss.

KPMG鈥檚 report doesn鈥檛 say exactly when PCHC鈥檚 problems started, though we now know from company accounts published in March this year that the firm made a 拢4.1m loss for the year to the end of May 2014, on revenues of 拢64.7m. It also restructured its management team in April 2014, promoting Laing O鈥橰ourke veteran Duncan Salt, who had joined the firm in 2012, to director.

The company experienced contract disputes and suffered losses on a number of major contracts

Joint administrators鈥� proposals document

From the outside, however, there was at this stage nothing to suggest any cause for concern. The first external signs something was wrong came - if you knew where to look - in a statutory filing by a firm called Crystal Formwork in December last year. CrystaFormwork 鈥� which had been known as PC Harrington Formwork until two months earlier 鈥� is not part of the Harrington group. However, according to KPMG鈥檚 administration proposals, the firm exists for the purpose of employing the staff that undertook work for PC Harrington Contractors, and is held separate from the group under common ownership by the Harrington family. The filing said Crystal Formwork approved the setting up of a Company Voluntary Arrangement, or CVA 鈥� which is basically a formalised debt repayment schedule - in November last year in a bid to pay debts including a 拢3.99m debt to HM Revenue and Customs and other debts to Harrington Group companies. As CVAs are a way to give debtors a breathing space on repayments in order to gain time to turn a company around, it was a sure sign of difficulties.

While this was happening, auditors signed off PCHC鈥檚 revealing 2014 accounts, although these were not made public until months later.

Meanwhile PCHC was starting to get a reputation in the market for poor payment of debts. According to credit reference agency Top Service, the agency acted for 18 different companies that were trying to collect debts owed them in the six months before PCHC went into administration. PCHC also lost county court judgments, including six in the last two months alone. KPMG鈥檚 proposals document says the company was also named in several formal recovery actions by creditors.

KPMG鈥檚 document shows that PCHC was now under 鈥渟ignificant pressure鈥� from trade creditors and subcontractors, to whom it owed about 拢12m. The wider group also owed 拢8.5m to two secured creditors 鈥� the Bank of London and the Middle East, and Close Leasing/Asset Finance. The document says 鈥渃ash flow became increasingly constricted鈥� as a result of these growing pressures, and ultimately became 鈥渆xtremely constrained鈥�, with PCHC reliant on support from 鈥渙ther entities within the group鈥�. In response, the document states the directors spent the first three months of 2015 exploring 鈥渧arious restructuring and refinancing options for the group as a whole鈥�.

This included marketing its profitable crane hire arm, HTC - a sister company to PCHC - for sale in order to raise funds. To this end, Endless, which describes itself as a turnaround financing expert, was contacted as a potential buyer of HTC, with a sale anticipated to include PCHC鈥檚 fleet of 15 cranes, with a book value of 拢2.9m.

Amid market rumours PCHC was in difficulty, on 10 March 2014 accounts for PCHC, Crystal Formwork and a number of the other group companies were published. These showed the extent of PCHC鈥檚 losses, which PCHC described as 鈥渆xtremely disappointing鈥� and which it blamed on delays suffered on two large contracts. But it also said its financial position remained strong with a 鈥渉ealthy鈥� order book and that it continued to secure repeat business from satisfied clients.

More serious news was contained in notes to the accounts which started to give a fuller idea of the trouble PCHC was in. These pointed out that 鈥渢he fact that cash flow commitments are starting to impact upon fellow group companies鈥� finances indicates the existence of a material uncertainty which may cast significant doubt on the company鈥檚 [PCHC鈥檚] ability to continue as a going concern鈥�. Nevertheless, the accounts said the directors were confident the company would meet day-to-day cash flow commitments, and said detailed sales and cash flow modelling had been provided until December 2015 to back this up.

Despite these assurances, by the end of March the view of the company had changed and group MD Duncan Salt called KPMG, alerting the firm to its difficulties. Obviously aware of where all these problems were leading, PCHC at some point before KPMG鈥檚 formal appointment also arranged the novation of two contracts - Sir Robert McAlpine鈥檚 Lillie Square scheme at Earls Court and Ballymore鈥檚 Royal Wharf project in east London - to a sister company in the group, Structural Systems. KPMG鈥檚 report says this was done 鈥渢o attempt to protect the value in the contract debtors and protect the wider group from potential claims under performance bonds and parent company guarantees.鈥�

Meanwhile, Endless decided not to buy HTC. However, the discussions led instead to Endless on 16 April refinancing all of the secured bank debt of PC Harrington Group, which by the time of KPMG鈥檚 appointment totalled 拢9.5m. The administrators鈥� proposals make clear that the upshot of this is that it is expected that the rest of the group will ultimately settle this bill - meaning this debt remains on the wider group despite PCHC鈥檚 subsequent fall into administration.

The PC Harrington Group at this time also found a buyer for HTC in German crane firm Wolffkran, with the sale including PCHC鈥檚 crane fleet. KPMG鈥檚 document shows that PCHC got 拢1.93m for the fleet - 拢1m less than the value for it registered on the group鈥檚 books, but the full market valuation at the time. However, the terms of the deal with Wolffkran means it has not yet given the group any cash for the business, and will not do so for up to six months. Instead, it has given the group 鈥渇irst legal charge鈥� - in other words, right to the money from a sale - of three properties near the M1 between Sheffield and Rotherham as a form of guarantee the money will be forthcoming.

Despite this good news, on 15 April KPMG was formally engaged by the group 鈥渢o help them explore the available options in the light of the group鈥檚 cash flow difficulties鈥�. News of the difficulties finally broke in the press, when a court in Leeds registered this as a 鈥渘otice of intention to appoint an administrator鈥� to PCHC.

Despite this public admission of PCHC鈥檚 problems, the firm issued no comment, with 黑洞社区鈥檚 journalists told to submit enquiries by post and wait for a response.

Internally it was becoming clearer by the day that nothing could be done to avoid administration, and the firm started winding down its trading operations in preparation. On 27 April the directors decided to appoint KPMG as administrator, and on 5 May 黑洞社区 broke the news after the notice was filed at Leeds Combined Court. Not previously reported is the fact that three days later the Harrington family-owned firm that supplied PCHC with labour - Crystal Formwork - and which employed at the last count 127 staff, was put into liquidation, owing HM Revenue and Customs 拢4.5m in PAYE and National Insurance Contributions, and 拢3.9m in VAT. According to a KPMG spokesperson, 鈥渢he majority鈥� of Crystal Formwork鈥檚 staff were transferred to Structural Systems prior to the appointment of liquidators, with the rest made redundant. However, PCHC鈥檚 only subsidiary - Slipform International - and all the other firms in the group continue to trade.

KPMG鈥檚 report, based on discussions with directors, KPMG agents, and any money still coming in, makes clear how dire the situation had got - albeit a more comprehensive 鈥渟tatement of affairs鈥� had not been made public as 黑洞社区 went to press. The report says PCHC went into administration with debts of 拢28.4m. Of this external trade creditors and suppliers were owed 拢11.9m, with steel reinforcement supplier BRC owed 拢2.1m and LaFarge Tarmac 拢2.5m. The good news for suppliers is that because the bank debt was essentially taken on by the group, and PCHC employed no staff, the firm has no secured or preferential creditors, meaning all its assets can be distributed among the suppliers. However, just 拢900 was in the company鈥檚 two bank accounts when KPMG took control.

While the company in theory has assets 鈥� including debts owed to it 鈥� totalling more than its debts, having gone into administration KPMG鈥檚 initial estimate is that just 拢3m of these assets will actually be recoverable. Creditors, therefore, are likely to receive just a small share of what they are owed.

So what happens to the firm now? The directors of PCHC missed a deadline to provide to KPMG a more detailed financial picture of the firm, originally due by 26 May. However, this is expected to have been provided by the time of today鈥檚 creditors鈥� meeting, so more information may quickly become available. KPMG will look to sell Slipform, according to the administrator鈥檚 proposals, which has in the last year been attempting to take on customers outside of the PCH group. The KPMG spokesperson confirmed the administrators were 鈥渋n discussion with the board and management team of Slipform International 鈥� which is expected to be marketed for sale in due course.鈥� Overall the report simply says KPMG will seek a better outcome for the company鈥檚 creditors than would be likely if it were wound up.

KPMG鈥檚 administrators proposals says the firm is 鈥渢ogether with our agents [鈥�] in the process of reviewing鈥� whether the novation of two contracts to Structural Systems prior to the administration had meant PCHC 鈥渋nadvertently suffered any loss or missed out on any profit鈥�. A spokesperson for KPMG added: 鈥淎s a matter of course, the joint administrators will always review the transfer and novation of contracts throughout an administration process to ensure that they provide the best value for creditors.鈥� In addition, given the references in KPMG鈥檚 administrator鈥檚 proposals to the 鈥済roup鈥檚 cash flow difficulties鈥�, and the 拢9.5m group debt to Endless, it seems likely the group faces a tough time ahead. PC Harrington declined to comment on this article.