Ed’s view: Is the fury over Francis justified or is it the system that needs fixing?

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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?

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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.

Authors

17 Comments

  1. Felipe Pérez (FRICOSMOS) said:

    The system usually fix itself, provided that we are dealing in a free-market. At FRICOSMOS we have emerged strenghtened from the “fury” of the recent Spanish crisis, but many manufacturers and distributors also sucumbbed. Congratulations to Unitech for taking advantage of this situation and for saving the weaker party of the system.

  2. Equipment Supplier said:

    Interesting article Clare, you are right to highlight the inevitable changes that will be coming along and putting even more pressure onto the cash flow of some dealers.
    It is great that you have tried to put some balance back into this debate via your suggestion that Francis ‘could have been hoping that this was a temporary cash flow issue…’
    One of the obligations of the Board is to ‘ensure that the obligations to shareholders & other stakeholders are understood and met’ and another is ‘setting strategy’. I am not sure that ‘hope’ quite covers either of these – as a very wise friend once told me ‘hope is not a strategy’.

    • Cathy Wilcox said:

      Excellent reply – planned cash flow is essential – we all know that.
      The shortfall in cashflow would have been anticipated some months in advance and action then taken (deposits up front, loans from bank) – yes “Hoping” is NOT a strategy (and would any of us believe this)

      What I find morally reprehensible is that goods were being accepted right up to the time of the insolvency being announced when the directors knew those suppliers would be paid.

      I think all the suppliers who have been affected SHOULD ensure an investigation takes place – its sickens me to think that this happens in our industry

  3. Concerned said:

    yes but a £453,000 profit on a £13.3 million pound turnover are you sure this is right? if so then therein lies a major part of the current problems facing bona fide distributors

    • Clare NichollsClare Nicholls said:

      That figure is profit for the financial year. Gross profit was over £3.7m.

  4. Nic Banner said:

    It is great that the 40 jobs have been saved, but you fail to address the knock on of potential job losses with the manufacturers and suppliers.

  5. Mark Witherington said:

    Sadly this won’t be the last example. Great thought provoking journalism Clare!

  6. Really concerned said:

    That’s even worse. From 3.7M GP to Bankrupt in one financial period, Impressive. To have less than 0.5M net from that would suggest to me someones been taking a shed load of money out, far more than normal overheads. Wheres it all gone. Should be more than enough there to cover trade creditors.
    This is endemic in our industry that seems to have more than its fair share of shysters and cut price merchants who’s only concern is market share and they don’t care how they get it especially if it means driving a competitor out of business. Not that long ago we actually had a CEDA chairman who suggested at conference the “ethical” policy should actively encourage the financial undermining of all non CEDA distributors. Be surprised if the man can spell the word let alone understand it as a concept.
    Clare for you to suggest Unitech and Francis have protected jobs is ridiculous, what they have done is very cleverly protected themselves by what is clearly a planned event and planned over quite some time. all this work and most of the staff would have been picked up by other distributors in the usual feeding frenzy that follows these sorts of things.
    Its time to draw a line under this kind of behaviour and profiteering from the misfortune of others, whats been done here is morally bankrupt and questionable at best and I hope and pray the insolvency practitioners find cause to properly investigate the affairs of all the directors involved. In fact I encourage everyone and anyone involved or not to make an official complaint if its possible to do so. We don’t need people like this in our industry, the fact that we tolerate it makes us all look foolish.

    • Clare NichollsClare Nicholls said:

      Just to clarify, the figures above were for ScoMac and not Francis. Francis’ turnover for the 2015 calendar year was more than £6.5m with a gross profit of over £1.5m.

  7. Nick brandrick said:

    Good article Clare although I don’t think lobbying the government will help and there is already insurance out there for bad debt, it’s very expensive though, companies going down and stuffing people for money is rare in this game, Francis had 40 years behind it, a household name so to speak, so complacency set in………..

  8. Jack sharkey said:

    This discussion has really caught my eye, and a nice piece of journalism from Clair, I have read all the comments and even gone back and read all the comments from the original article as well. I think the title of this article sums it up, is the system broken!!!

    I don’t blame Unitech and its directors for working to the rules, yes, they could buy the company and all its debt but that would-be suicide and a stupid commercial decision, when there is other ways of structuring a deal within the government set rules.

    Rather than criticise the players criticise the rules, but don’t just criticise come up with new rules that are workable. I don’t know the circumstances surrounding this particular situation but Directors have a responsibility to their shareholders, staff, creditors and debtors and there are rules in place set by the government, if you break them you are breaking the law.

    I am by the way, not saying for one minute this is the case here, I simply do not know, and would like to think knowing some of the directors they have played and worked to the rules.. This is not about Francis this is about the rules and policing business in general which must be fixed

    I for one take those responsibilities very seriously, but I have seen company directors during my business life flaunt the rules and even break them without any consequence and that is fundamentally wrong… but who police’s them!!!, are the consequences of breaking the rules sever enough!!

    You then get into the discussion of what qualifies an individual to be a director – currently nothing!!… Anyone can be a director, without even understanding what their responsibilities are and with no qoulifications…

    Fix the rules, police the rules…

  9. Nick brandrick said:

    I disagree Jack, the issue here is integrity and ethics, and let’s face it, when did either of those come in to force to stop a quick buck from being made. I remember years ago the strict criteria for becoming a CEDA/CESA member, now they will take anyone who pays the fee. Companies will still trade with Francis, they may be more cautious but they will still trade with them, the same as the other outfits bought by Unitech, and with regards to the post above in relation to a past CEDA chair, I can believe that this was said and I could probably tell you who said it……….if you really want to be honest, the industry has got rather clique with about 6 or 7 trying to monapalise the board and not letting anyone else have a throw of the dice, you only have to read on here to see how it’s going.

    • Nic Banner said:

      Nick, My company, like yours has taken a hit and very unfortunately it is unlikely that we will get our money or goods back. You cannot blame Unitech for taking an opportunity, nor the “W***ers”, who run the companies that Unitech buy out of administration, and then reinstate to run them again. In this case the blame lies fairly and squarely on the shoulders of the directors of Francis Catering Equipment Ltd. Whether they are subject to fraudulent dealing will all come out in the wash, but as manufacturers and suppliers to the catering industry, you have decide who you do business with, We at Induced Energy have made our choice and will be happy to tell those that we feel do not act in the best interests of our company that we will not supply to them.

  10. jack sharkey said:

    Nick sorry I think you misunderstand me, integrity and ethics have always been a prerequsite for me, and is taken as read for any business, unfortunatly that is not the case across many sectors and industriues, that was my point, legislation needs implementing in general and policing to manage what is, and what is not alowable.. i am not taliking about this incident in particuler, as i would never offer comment on somthng i do not know the facts about and I will not speculate. I am talking about in general across all sectors and markets… as for CEDA I think you are somwhat out of date… they do not just accept anyone, if anything i would argue they are even more stringent about membership criteria than ever before….and any CEDA member can get involved with the associations membership criteria, policy making and general direction..if you are at the next regional meeting I will buy you a beer and we can discuss it in detail!

  11. Manufacturer. said:

    Just to say also that Francis were still trying to get equipment shipped out on Tuesday! hoping we hadn’t heard from the administrators. Nothing more to be said really.

  12. Frustrated supplier said:

    Nic makes an excellent point. This happens time and time again with not a second thought given for the poor reps factory workers admin staff within the manufacturers who pay the price due to someone playing fast and loose with their business. The sad reality is that the very same company will rise from the ashes expecting the very company they’ve just taken for a large sum of money to drop at their feet begging for business and giving them large credit limits and premium discount. It’s no wonder some manufacturers are beginning to go direct to the end user more and more. How can they trust companies that behave in such an unscrupulous manner?

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