Scottish VAR went bust owing £2m to trade creditors

Arrow and Ingram among largest creditors

Scottish Cisco partner Hutchinson Networks went bust owing nearly £2m to trade creditors, reports filed by the administrator have revealed.

Hutchinson entered administration in May, after plans to invest heavily in future growth backfired.

The firm's assets were eventually sold to Dublin-based PlanNet21 in June, with the report showing that a fee of £50,000 was paid for certain assets, customer contracts, stock and goodwill.

The amount owed to unsecured creditors sits at £3.6m, the report states, with trade creditors owed just under £2m.

Arrow and Ingram Micro are among the largest trade creditors, owed £274,000 and £617,000 respectively. HMRC is owed £825,000.

The administrator said it is not yet clear if funds will be available to pay unsecured creditors, explaining that this is dependent on how much can be retrieved from the company's debtors, which totals over £2m.

Where it went wrong

The adminstrator's report, dated 8 July but only recently filed with Companies House, details the period leading up to Hutchinson's demise.

The firm had invested in "ambitious" growth plans over the previous year, driven by increased financing and private equity investment. During this period headcount rocketed from 58 to around 120 members of staff.

Sales in the year 31 December 2018 hit £11.1m, but EBITDA was a loss of £1.8m "following losses on a number of projects and insufficient gross margin being generated to cover increased overhead".

"Losses resulted in a forecast additional funding requirement and the directors were able to obtain approximately £400,000 from a combination of new hire purchase finance, an unsecured loan from a finance company, and an unsecured loan from a relation of one of the directors," the reported states.

"The directors also entered into discussion with the company's existing lenders and shareholders, other lenders, and government agencies. However, no new finance could be secured and the company was forecasting that it may run out of cash."

Hutchinson entered administration after the sole potential offer of additional financing it had received fell through.

If the backing had been secured, the firm was expecting revenue to climb to £17.5m, with EBITDA losses narrowing to £200,000.

The administrator said it "immediately ceased the majority of the company's operation" after it went into administration, with trading continuing on a small part of the business.

Three offers were eventually made for the remaining business, with PlanNet21 completing its acquisition in June.