Past finally catches up with M2
Analysis - Reseller's historic problems prompt demise amid turmoil of profit warnings and administration cases.
The past few weeks have thrown up a few surprises for the channel, to profit warnings and administration cases. the point that the old chaos theory cliche about the butterfly flapping its wings in one corner of the world and causing an earthquake in another looked as though it was having some resonance.
Vendors and distributors alike have been issuing profit warnings like they are going out of fashion. Storage wholesaler Connexe Peripherals met a worse fate in the past fortnight when it ceased trading.
Resellers and systems builders have not been left out of the melee either.
There have recently been several that have issued the ultimate profit warning - that they are not likely to be making any more. Witness the fortunes of reseller M2, and dealer and systems builder Actinet Computers, which have both ceased trading.
Nitin Joshi, director of administrator Pannell Kerr Forster, expects 'even more knocks on the door', as the shakeout continues.
But while the global PC industry is in enough turmoil of its own, there has been room for speculation in the UK as to whether more specific factors affected the state in which one reseller found itself.
Through former directors Michael Brown and Donald Sebastian Ballan, M2 is linked to a history of other companies that have ceased trading, only for the pair to spring up running another show somewhere else. This has led to much speculation within the channel as to where they will turn up next.
On 16 July 1998, Brown and Ballan were disqualified from being directors by the Royal Courts of Justice and banned from running companies for eight and six years respectively, after PC retailer chain Diamond Computer Systems went into liquidation, owing more than £3 million.
Brown had been a director at Diamond, while Ballan was a director of its main creditor, Direction Technology. It took over Diamond's nine stores as payment for the £500,000 debt owed, and then went into liquidation itself. The pair later became directors at M2, while also linked to directorships in other firms, including Ricewood and Marstom - both now defunct.
The initial feeling that justice had been done with the court decision was quickly replaced by cynicism and a sense that it had not gone far enough, as details of the disqualifications emerged.
Brown and Ballan would be allowed to spend 15 minutes of 'consultancy time' at M2 every week. In the meantime, their wives Joanna Brown and Julie Ballan, also directors of Diamond and Direction respectively, carried on as directors at M2, according to Companies House records.
Although Messrs Brown and Ballan were forbidden from making decisions without the consent of the board, many within the channel have questioned how this could have been monitored. And did discussions with their wives about the business outside office premises constitute 'consultancy overtime'?
Terms such as 'weak penalty' and 'farce' were bandied about. Many believe the men still ran the firm from behind the scenes until it ceased trading on 21 June (PC Dealer, 23 June).
Some distributors such as Micro Peripherals, refused to have any dealings with M2, itself having lost about £80,000 from the Diamond debacle. Others, stung from their previous associations with Brown and Ballan, were determined not to get burned again. But the majority of those PC Dealer contacted said they were more comfortable now because they largely maintained cash-only transactions with M2.
Many sources believe this development may have led to M2's predicament.
With no credit system to speak of, it was only a matter of time before the reseller could no longer sustain itself.
It is interesting that M2's largest creditor is a vendor. Notebook and monitor manufacturer Maxdata is understood to be owed the majority proportion of its £900,000 debt.
Unfortunately, M2 is not the last in a long line of administration cases in waiting. Expect a long summer of discontent ahead.