What contractors can do if owed cash by closed Coal IT
February the 10th 2017 was not a good day for the UK’s contracting community, as London-based recruitment agency Coal Intelligent Technology Ltd entered administration, leaving dozens of contractors hundreds of thousands of pounds out-of-pocket, writes Adam Home of debt recovery firm Safe Collections.
Coal IT was a well-known company in contracting circles, with contractors working for national broadcasters, blue chips and FTSE 100 companies across the capital. Its last filed accounts for 2015 showed a turnover of over £15 million and a healthy pre-tax profit in excess of £250k.
But all hadn’t been well with Coal for some time. The first sign of trouble that we saw was in December 2016, when contractors’ invoices went unpaid. Things seemed to spiral quickly after that, and when invoices again went unpaid in January, the writing was on the wall.
Documents we have seen suggest that creditors were initially lulled into a false sense of security over the unpaid invoices by Coal’s apparently healthy credit rating. However, by the time January’s payment deadlines slid by with no sign of the cash owed to them, increasingly frantic contractors were contacting the firm en-masse to try to establish when the two months’ worth of outstanding fees would be paid.
Coal IT had promised payment on February 17th, but before that date could arrive, the company was placed into administration by Bibby Financial Services.
So what now?
The administrators in this case, SFP, originally hoped for a quick sale of the business as a going concern, but this was apparently not to be, as subsequent correspondence sent to creditors on February 15th stated SFP “has not been able to complete a sale of the company’s business and assets as a going concern and the Company has now ceased to trade.”
It is still early days in the administration procedure and closure of the business at this stage does not mean liquidation is inevitable. The administrator is obliged to seek the best resolution for all creditors by recovering as much of the outstanding debt as possible.
They will write to all creditors of the company within 8 weeks of the date of the administration outlining their proposed course of action, whether this involves sale of assets, restructuring, sale or closure of the company.
In the meantime, if you are owed money by Coal IT, there is unfortunately not much you can do but wait. Entering administration means that creditors cannot launch any legal action against the company and any ongoing litigation is now paused indefinitely while the company remains in administration.
All you can do is make sure the administrators know of your claim. Whilst we understand most creditors have now heard from SFP, if you haven’t already done so you must contact them as a matter of urgency to lodge your claim. SFP can be reached on 0207 538 2222 or by using their contact form here.
Will I get paid?
With a quick sale and corporate rescue apparently no longer on the cards, the outlook for creditors appears bleak. We conservatively estimate contractor losses to be upwards of £250,000, based on those creditors who have been in touch with us. We suspect the true figure may end up being significantly higher.
Until the administrators write to the creditors providing an update on the current financial position of the company and outlining its assets and liabilities, it is impossible to guess if contractors will receive all, part or none of the funds that are outstanding.
However, contractors will likely find they are ‘unsecured’ creditors of the company and therefore, if it is eventually wound up, come at the bottom of the list for repayment when its assets are sold off. In our experience, once a company has entered administration the likelihood of it returning to normal operation is slim. Creditors should therefore brace themselves to lose the funds they are owed.
This is obviously painful for contractors affected, but interesting too because it comes at a time when the Institute for Fiscal Studies has opined that it is “difficult to make a case that differential tax rates should be used to reflect…whether individuals [such as the self-employed] take risks.” Well, the story of Coal will hopefully fuel the debate about the tax treatment of contractors and others who bravely strike out on their own to do business for themselves. However, a report in yesterday’s Times newspaper indicates Budget 2017 will take action to deny such one-person ventures the potentially preferential tax treatment they can receive, despite the obvious risks of doing business with -- and losing all your earnings to -- the likes of Coal.