This week’s news that Francis Catering Equipment is the latest dealer name to succumb to insolvency has provoked much anger in and around the industry.
While it is positive news that all 40 jobs have been saved by Unitech’s buyout of the firm, questions have swirled around business practices leading up to this situation and what will happen to the debts accrued by the distributor’s suppliers, which will not be taken on by the new entity, Francis Commercial Kitchen Services.
Sadly, whenever any company goes out of business, creditors are usually stung. The administration process may recoup a percentage of the debts, but it is very rare that they get all of their money back. So is it the catering equipment industry that is broken or the system in general?
Perhaps the best course of action in these cases would be to have a government ‘insurance’ fund for insolvency situations, which would cover all creditors if a company goes out of business. After all, if the travel industry can subscribe to ATOL protection for holiday-makers, then surely something like this is possible for UK plc, especially when it tends to be SMEs on the receiving end of unpaid bills.
Several thousand pounds for them could destroy their own businesses, and that’s a domino effect no-one wants to see. Does anyone want to petition Theresa May to set up a protection scheme like this?
And let’s face it, it would be a very brave business which would buy an outfit saddled with debts. It’s hardly an attractive proposition.
I absolutely understand that it can be galling to see directors start up very similar businesses after losing a company and absolving themselves of the debts, but again, that’s probably a matter for the government. It could be a very long list of loopholes that we demand Theresa May close, at this rate.
With the Francis situation itself, the debate raged on this very website as to whether the distributor had run up debts when it knew it was going out of business. This is certainly an accusation that has been levelled at it by contractors on social media. We may never know the truth of the matter, but it could be that it was hoping this was a temporary cash flow issue, or that many in the company were simply naïve as to how bad the problems were.
However, as one contributor to the discussion advised, if anyone really does know that there was malpractice, they should contact the insolvency practitioner for the case or the government’s Insolvency Service.
Cash flow is a constant challenge for everyone in the catering equipment industry, and this is by no means the first or indeed unlikely the last company taken down by working capital problems. In striving to expand any distributor or supplier you have to speculate to accumulate and sometimes the speculations don’t work out.
No-one could describe Francis as a fly-by-night company, having been in business for over 40 years, so it just goes to show it could happen to anyone if circumstances conspire against them.
Nearly losing another big dealer name will likely have an immediate negative impact on other distributors though, as suppliers’ natural reaction to this will be to act even more cautiously. Expect some interesting discussions between credit departments and sales managers this week.
Are we heading for a situation where suppliers will eventually cancel credit lines altogether, with all business done via upfront payment? This may be the most extreme take on the situation, and a highly unlikely one given the need to facilitate sales, but dealers can certainly get squeezed further in what is already an uncertain period thanks to the background of Brexit.
Another accusation thrown around is that it is bad for the industry that Unitech has again bought a distributor in administration, as it did with ScoMac.
However, if you look at ScoMac’s most recent financial figures it made a £453,856 profit in 2016, up from £337,708 the year before, and is also currently recording a £13.3m turnover. That money would not have been there had the company been left to die, so I would argue the buyout has actually been demonstrably good for the industry, though I understand this might be viewed differently by those on the receiving end of a business collapsing into administration.
Whatever happens in the new Francis Commercial Kitchen Services’ future, here’s hoping that it will be positive for the sector as a whole.