Virtually every week a story arises about a reseller falling prey toice factoring for acquisition capital. the ravages of financial calamity. So the fact that another small company has gone into liquidation should come as no surprise.
Yet the outcry that followed the liquidation of London-based reseller Sysguard Group Limited - which was set up by David Solomides in 1993 - may elevate it above many others since distributors were not the only ones affected.
On 5 November 1997, Sysguard Group acquired Automated Office Systems (AOS) - a Bournemouth-based reseller with six employees - for #270,000, to be paid in a number of instalments.
Les Gunnell, sales director at Active Response Computers and former managing director of AOS which had been operational for 15 years, commented that initial discussions had taken place in April.
However, the only point both resellers will agree is that the acquisition was the start of problems which saw Sysguard Group plunge into liquidation on 4 March, culminating in a creditors' meeting on 23 March.
By October 1997, Gunnell claimed: 'Sysguard was already in a state, but we previously hadn't realised the company was financially unstable.'
Tim Warner, former director of Sysguard, disputed these claims, stating that in December 1997, AOS began to have bad debt problems.
On 23 March, it emerged at a creditors' meeting - at which Pannell Kerr Forster was appointed as liquidator - that factoring money had been used by Sysguard Group to raise the capital needed to purchase AOS.
According to Eddy Pacey, credit manager at Ideal Hardware: 'Factoring to acquire is not a practice that is recommended.' He added: 'At the creditors' meeting it was determined that cashflow problems were due to the factoring of invoices used for acquisition capital.'
Warner admitted factoring had been used and was completely legal, but said: 'That is why we are in such debt.' Helen Hooper, former financial controller at Sysguard Group, who joined in October 1997 and left the company in February, submitted a letter at the creditors' meeting which attempted to clarify the financial standing of both resellers.
In the letter, Hooper stated that after joining Sysguard Group nine months into the financial year, 'none of the balance sheet accounts balanced out, and the re-conciliation of the bank ledger in the companies' computer records was over #270,000 - different to the true figure.'
Hooper also recounted the practice of charging personal expenses to the company - which Solomides later admitted - and over 250 accounting errors contributed to the general poor state of the company accounts, which had been maintained by David Solomides and his wife before Hooper's arrival.
The letter also conceded that the AOS accounts revealed discrepancies in trade creditors: 'The practice of chasing overdue trade debtors had not been undertaken as diligently as would be ideal.'
However, Hooper concluded AOS' accounts were: 'Significantly better than those of Sysguard.'
It also became clear that Sysguard Group had neglected to undertake independent due diligence when acquiring AOS. A source said: 'Solomides only looked at the accounts of the company and neglected to get an independent auditor to look at the whole of Automated Office Systems.'
Warner said: 'In terms of due diligence, we looked at the accounts - which now do not seem to be correct.'
Sysguard was estimated to be in debt to the tune of #600,000, accounting for money owed to Azlan, ETC and Ideal Hardware among others.
Most significant, however, was Computer 2000 which was owed #197,000 after the distributor extended Sysguard Group's credit limit just two weeks before the company went under.
Nick Tiltman, credit manager at C2000, confirmed his colleague Bill Roberts, business assessment manager, met with Solomides and Warner on 17 February to increase its credit by #50,000.
Tiltman said: 'We take on companies within a sensible boundary, but some are a calculated risk. Bill is personally affronted by this.'
According to Pacey, Gunnell is also owed #190,000 along with a number of instalments still owed for the acquisition. But Warner countered: 'We had made another payment before all this happened.'
Of the original 30 employees at Sysguard Group, 15 remain and are employed at a different company, Intelligent Technologies, which was established on 20 March and where Solomides and Warner are both directors.
But the employees who have since left are owed money - including two former sales executives, one of whom is due #11,000, while the other is waiting for #14,000, both in unpaid commission.
One former employee said: 'This has been an error of judgement, people even took salary cuts at first, with the promise of increasing the basic with commission - but this didn't happen.'
Warner said: 'There is a legal case being put together - which we will be presenting to the liquidators. We have been a professional company for the past three-and-a-half years, and our business was going up.'
However, Pacey, who is part of the creditors' committee, said: 'We will look at the company to see what it can pay, but we may decide to look at directors' conduct - they may get disqualified.'
Tiltman said: 'It is legal that Sysguard has done this, but whether it is morally right is another question.'
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