Sources suggest the banks were wary of the firm鈥檚 optimistic figures

News this week that the collapsed social housing firm had a 拢42m black hole in its accounts has been followed by further revelations about why the banks rejected its three-year rescue plan.

黑洞社区 revealed last week that the plan required the RBS-led group of lenders to inject 拢50m within a month to keep the company afloat.

黑洞社区 understands the plan was based on the assumption Connaught would make a profit of 拢17m on turnover of about 拢450m by year three. One source close to the administration process said: 鈥淭he banks realised those figures were optimistic. Another major flaw in the plan was that the Connaught name was already damaged.鈥�

Morgan Sindall鈥檚 Lovell arm is providing emergency repair work on the 拢17.5m deal Connaught started with Norwich council in April after a legal challenge by losing bidder Morrison, which alleged Connaught鈥檚 bid was 鈥渁bnormally low鈥�. According to both sources, the job will make a 拢2m loss this year.

Although Morgan Sindall took on the bulk of Connaught鈥檚 contracts, 黑洞社区 understands some councils may make alternative arrangements. One source said: 鈥淚 think Morgan Sindall will still see it as a good deal if only 50% of the contracts went across to it, if they were the more valuable ones. It did its homework on this deal.鈥�

Question marks have been raised by some over the fact Morgan Sindall paid out 拢28m after a relatively short period of due diligence. One losing bidder said: 鈥淕iven all the extra money Morgan Sindall will have to throw at the company, I do wonder how it will make this deal pay any time soon.鈥�

Morgan Sindall declined to comment.

Meanwhile a series of probes could be launched into the collapse. Connaught faces a business department investigation if evidence is found of wrongdoing. The Actuarial and Accountancy Discipline Board will decide 鈥渨ithin weeks鈥� whether to probe auditors Pricewaterhouse Coopers. Meanwhile, it has emerged that the Financial Reporting Review Panel asked Connaught鈥檚 directors to clarify its accounts after a profit warning on 25 June.

 

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