Administrators – in the firing line

‘We’re the good guys,’ Ernst & Young corporate recovery specialist Alan Bloom told Accountancy Age when he was appointed administrator to Railtrack and began to wrestle with conflicting pressures from the public, ministers and shareholders.

In stark contrast to Bloom’s assertion, the public, and particularly consumers and workers, are more likely to see administrators as corporate grim reapers. Recent events at Courts, the troubled furniture chain, have only served to confirm the poor view held of insolvency experts.

News that the furniture store was failing hit families hard just weeks before Christmas, sending many into a frenzy. At several stores around the country, this concluded in violence and vandalism against people and property.

A lack of knowledge and understanding about the administration process culminated in explosive events in Milton Keynes, where a security guard had his arm broken.

From the consumer point of view, all they could see was their hard-earned savings – put down as deposits for plasma-screen TVs, DVD players and digital radios – lining the pockets of already wealthy administrators.

Clearly there is a lot of ignorance about the problems facing administrators and their teams. They often have to deal with highly charged confrontations involving very real threats to their person and property. Things can get ugly, say experts, particularly when dealing with administrations in the property and retail sectors.

‘Generally speaking the property sector, and anything in retail or that involves consumers, is problematic and administrators would prefer to avoid it,’ says Nick Hood, veteran administrator and senior London partner at Begbies Traynor, the insolvency and corporate recovery specialist.

Hood, who has been threatened with a baseball bat on numerous occasions in the line of duty, adds that the haulage and transport sector can also be complex. When the situation gets really heated, Hood says, an administrator’s only recourse, after attempting to talk the situation down, is the police.

‘We always try to talk first but if that doesn’t work then you always have to involve the police,’ he says.

The Courts situation got so out of hand that administrators, Mick McLoughlin and Chris Laverty of KPMG corporate recovery, decided to temporarily close down the stores. The move further angered customers who viewed the shutdown as completely blocking them out. But the administrators’ duty ultimately lies with the creditors and their staff, who were faced with violent customers.

A source told Accountancy Age: ‘Staff were punched and kicked by angry customers and had their cars severely damaged.’ The firm confirmed that there had been ‘isolated incidents up and down the country where staff had been threatened’ – but would not reveal more.

It is perhaps this kind of fear of communicating exact events that perpetuates aggressive incidents. Perhaps by revealing to the public, via national and local radio and newspapers, the extent of violence to firms’ staff, whether psychological or physical, would help neutralise future incidents.

‘On day one of a difficult administration we don’t want to spend our time with angry, confused customers. It’s easier to head it off at the start, get something up on the website,’ says Hood. ‘The man on the street usually doesn’t know his rights so doesn’t know who to turn to when a problem like this arises. It’s difficult to get the message across, as there’s no one port of call for them.’

But it’s not always the public that are difficult to deal with, professionals can be equally highly strung.

In 2002 Begbies Traynor worked on the Trapps Cellars’ administration, after the wine warehouse was found to owe £1.93m in unpaid excise.

The majority of Trapps Cellars’ customers were professionals and a few celebrities who held their wines and spirits at the warehouse in London Bridge. Despite the professional nature of Trapps’ 600 clients, Hood says it was the most disgraceful case of abuse he had ever worked on.

‘It was the worst abuse my staff and I have had to deal with,’ recalls Hood. ‘We had to give our receptionist counselling afterwards because she was abused in the most disgraceful way. And the letters sent in were despicable,’ says Hood.

The main message here is about communication. Accountants have been getting better at explaining to the public what they do in an attempt to dispel expectation gaps.

The tragedy of Enron brought about that change. Maybe from the disaster at Courts, administrators should think about better ways of informing the public of what their jobs entail.

In a globalised world where no one is an island, corporate recovery staff will have to make greater efforts and devise more creative ways of keeping all stakeholders informed, in a bid to better protect their staff and minimise potentially catastrophic situations.

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