The fall of South West construction giant Midas is being blamed on the Covid pandemic, inflation, loss of contracts, uncollected debts and ultimately the firm’s inability to pay its subcontractors.
A report by administrators for the stricken Exeter-headquartered company reveals attempts were made to save the business but three offers to buy the floundering firm fell through.
The coup de grâce came when Lloyds Bank pulled Midas’ £5m overdraft facility, pitching the group into administration with debts of more than £22m and the loss of more than 300 jobs.
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Administrators at global business advisory firm Teneo Financial Advisory Ltd have said it is unlikely there will now be any funds to pay the companies’ unsecured creditors.
Midas has been involved in huge and expensive construction projects across the South West at the time of its demise, including three Torbay hotels, worth a combined £40m, Penzance’s £5.8m Creative Cluster and a £50m housing scheme in Swindon.
Teneo - in a report on its proposals for dealing with the administration of Midas Group Ltd and its subsidiaries Midas Construction Ltd, Midas Retail Ltd, Mi-Space (UK) Ltd, Mi-Space Property Services Ltd, Midas Commercial Developments Ltd and Falmouth Developments Ltd - has explained the reasons why a the ninth largest company in the South West went belly up.
Despite turnover of £223,309,000 for the year to the end of October 2021, and a profit of £1.349m, the group’s trading performance waned to such an extent that by early 2022 there was no prospect of selling a solvent business.
Teneo said the rot started in 2020 when the group - which had offices in Bristol, Exeter, Indian Queens, Newton Abbot, Plymouth, Newport and Southampton - began experiencing a decline in trade which it blamed on disruption and supply chain price hikes caused by the Covid-19 pandemic.
Teneo said this decline in performance resulted in several “critical” contracts being postponed or cancelled, which subsequently led to the Midas companies experiencing liquidity pressure, in other words not having enough cash to pay its bills.
The group also had a large number of disputed debts which the directors considered could solve the cash flow challenges - if the debts could be collected in a reasonable timeframe.
But this didn’t happen and Teneo, in its report filed at Companies House, said: “We understand that reports to the board during the period from July 2021 to November 2021 indicated a realistic prospect of collecting material sums that would have had a significant benefit in clearing creditor backlogs and improving productivity on site, albeit this was ultimately not achieved.”
Midas’ trading performance then deteriorated rapidly, from November 2021 to January 2022, as the group was unable to pay subcontractors to complete work, which, in turn, affected its ability to generate sales.
In November 2021, the group began exploring a range of options including refinancing, accelerating customer receipts, including getting cash from disputed debtors, and a rapid sale of all or parts of the group.
It brought in experts from global professional services giant Deloitte LLP to try and broker a sale, and assist with the group’s cash forecasting.
Meanwhile, Midas was negotiating with Lloyds Bank to extend its overdraft facility, which, alongside its cash reserves, was its main source of funding support and due to expire on December 31, 2021.
On December 23, Lloyds confirmed the overdraft would be extended to January 7, 2022, on the basis the group would begin to provide additional financial information, for example cash flow forecasts, and Midas would agree to appoint the bank’s advisors Grant Thornton LLP to conduct a business review.
On January 7 the overdraft was further extended to January 28 following receipt of additional financial information and confirmation that the directors agreed to grant a debenture, secured by a fixed and floating charge over the Falmouth Developments Ltd subsidiary, to the bank, and also include Falmouth Developments in the group’s overdraft cross-guarantee and set-off arrangement.
Teneo revealed that despite initially receiving three offers for the share capital of the Midas group, Deloitte confirmed on January 28 that there were no longer any interested parties that would be able to buy all or part of the business and take care of its debts.
So, with no interest in purchasing the group on a solvent basis, the bank did not renew the group’s on-demand overdraft facility that was due to expire on January 28.
As a result, the directors of each of the group’s companies held board meetings on that day to consider placing the group into administration.
Subsequently, the directors filed Notices of Intention (NOI) to Appoint Administrators over the group whilst preparations were made to place the group into administration.
For logistical reasons NOIs over Midas Construction, Mi-space and the Midas Group Ltd were made on January 28, and for the remaining companies on January 31.
Joint administrators were appointed on February 8 following expiry of the five business-day notice period to the group’s floating charge holder Lloyds Bank.
However, a substantial part of Mi-space’s property services business was sold in a pre-package sale to Bell Decorating Group Ltd for £230,000, preserving 46 jobs.
Teneo’s report on the Midas fall from grace concluded: “The business was severely impacted by the Covid pandemic during FY20 (2020 financial year) which resulted in periods of closure of the business and adjusted operating conditions upon reopening. During FY20 the group also faced inflationary pressures within its cost base, including higher labour and material costs.
“Whilst we understand that the group saw a partial recovery in project margins during FY21, the group continued to experience significant working capital and cash challenges, as challenging trading conditions following the pandemic resulted in a number of contract delays. The group suffered a rapid deterioration in trade from November 2021 to January 2022 as the group was unable to pay subcontractors to complete ongoing works.”
