Brit IT biz 2e2 went under because its financial reports were flawed, it plunged nearly £50m into the red and its backers refused to throw good money after bad. That's according to a two-inch-thick dossier by the company's administrators FTI Consulting. The report documents the days leading up to the Berkshire-based integrator's …
A sorry tale for the staff,and having been in exactly their place a few years back, I really do sympathise. But excellent coverage of the 2e2 administration by The Register.
And talking of collapsed IT companies, maybe el Reg will make a point of covering the court proceedings against the Torex 4,shortly to commence in Oxford, plenty of meat there. I hear reporting restrictions are in place, but the bad stuff will come out in due course.
It s unfortunate that it is always the staff who suffer. Still, administrators don't care as they pocket a nice ~£2.5million for couple of months work...
FTI "Consulting" my arse.
I have no idea about the figures for the software side of the business, however I do know that on the day of the first redundancies (of which I was included), FTI essentially destroyed it. There was no way the projects could carry on with so many people gone and there didn't seem to be any reasoning in the rush to dump people. Didn't seem like anyone had bothered to sit down and see which projects were viable and then keep the people on that team to at least provide some hope of delivering it (and thus collecting money for creditors). So I'd bet good money that FTI lost out on a lot of money when they did that, without seemingly consulting anyone. I can't help but think that a group of six formers could have come up with a better way of handling things over a class discussion, yet FTI are supposed to be professionals.
The best analogy I have for what I see FTI did (some of whom were paying themselves £500+ PER HOUR!) was that they turned up, saw a locked safe. Rather than ask anyone if they had a key or try to carefully break in, they blew the safe open and destroyed a good amount of money inside in the process. Then, what money did survive this reckless act, they took for themselves.
Re: FTI "Consulting" my arse.
I was working in flexible resourcing so did not see what happened in Newbury or any of the 2e2 offices, but it seems a stretch to blame the administrators.
The firm was staggering along under an unsustainable debt burden. The business model on the part of the owners, Duke Street, was to build a product on borrowed money that could either be sold to a bigger idiot (looking at you C&W!) or be floated on the stock market. When those possibilities failed to materialise the firm went to the wall.
My only hope, beyond my ex-colleagues finding alternative employment on the same or better salary, is that FTI pursue Terry and Simon Burt for any funds that can be recovered from the director of a mis-run limited liability.
Re: FTI "Consulting" my arse.
" I do know that on the day of the first redundancies (of which I was included), FTI essentially destroyed it"
Administration is always brutal, unfortunately, and I don't think many people really appreciate that until they are on the receiving end. Given that 2e2 were bleeding cash, the most logical step is to get rid of as many people as quickly as possible to protect the senior creditors (because that's what FTI are paid to do). Maybe some projects could have been saved, but how many customers would want to keep paying for those projects when the original contracting entity has gone bust, and any buyer won't want to take on the old outfit's liabilities?
Looking at the Reg article, it seems that the receivables included invoices for services yet to be rendered. It is legitimate to bill in advance, but those numbers shouldn't be booked as turnover and profit for the current period, and putting this together with the appointment of an investigations firm as administrators, I can't help but assume that there's rather more than mere "weakness" in financial reporting. If it were simply a few rounding errors then 2e2 either wouldn't have got into trouble, or could have been sold. Given the large number of expressions of interest from potential buyers that all melted away, you can be sure that as soon as the cupboard was opened a rank smell flooded out. Again, a scenario that I'm personally familiar with.
WTF is "pre-used" ?
It means "used"
Unnecessary, redundant and/or excessive verbiage is a well-known and necessary requirement of consultancy communications.
From what I can gather it looks like they called in the administrators far far too late. I guess that's natural, though. Nobody will admit the game is up until the s**t really has hit the rotary convector. That's a shame, because had they placed themselves into voluntary administration 12 or 6 months earlier they could have possibly come out of it on the other side, leaner, smaller, and with a debt re-structuring plan in place. I'm sure there would still have been layoff, that's the nature of administration, unfortunately, but it would have been better than the thermo-nuclear option.
Re: Too late...
Bonuses were paid in December and they went bust in January. That just soesn't sound right does it?
Re: Too late...
"Bonuses were paid in December and they went bust in January. That just soesn't sound right does it?"
Does to me. Ignoring the rare situations where external and unforseeable events conspire to put a company out of business overnight, normally when a company goes bust the problems are clearly evident for many months, even years. However, the directors plough on, either in denial, or hoping to keep afloat long enough to sell the business to some mug. In either case the directors will take their share of the trough right up to the last minute (and beyond, if they can claim some knowledge of value to the administrators), and the sales force bonuses are actually part of routine compensation and so get paid until the money runs out.
Rarely is any business with a decent turnover beyond saving, if the directors will address the problems. But all too often they won't take uncomfortable decisions, and they often don't even know the true profitability and free cash flow of the different parts of the business. You wouldn't board an aircraft flown by an untrained pilot wearing a blindfold, but that's how quite a lot of companies operate. They find that serial, debt fuelled acquisitions are good fun and cause rising turnover and profits, without ever paying attention to the underlying business performance of either existing or acquired business. The auditors and the audit committee often aren't demanding enough on the quality of booked sales and the quality of receivables...and then you find that you've run out of cash, breached your covenants, and the bank have control of your business. The banks have until recently quite liked this, as it happens, because they could quite often sell the business on at a fat margin to a friendly PE house, renewing the senior debt, maybe pocketing some nice warrants against a future sale, and taking a fat transaction fee (along with the lawyers, the administrators, the accountants).
In the case of 2e2 it didn't work out this way, that suggests that the underlying business was too rancid to be worthy of buying, and we can only speculate why that might be so.
That it's a bit harsh to blame the administrators for the failure of the board that preceded them.
Could they (the administrators) have done things any differently? I don't know, it not being my specialist area. I'd like to think they should at least have honored their employment contracts and paid those poor souls they laid off without pay for January, but other than that from what I know from the outside and a few comments from friends who still worked there, the brown stuff had already hit the rotary device to such an extent that it was far too late to save the company.
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