Subcontractor Agency Case Study
The company was involved in supplying labour to main contractors that specialised in insulation and cold storage.
The director who had established the business was highly experienced in the sector and had worked as a subcontractor himself. Because he had many contacts who had approached him for work, there appeared to be a sound opportunity to run his own firm. Through the company, the director would offer his own services and in addition, those of other subcontractors.
The director always worked on site and so did not feel that an office premises was warranted – his home acted as the business address. Working capital was available through an overdraft facility and no corporate security was retained by the bank.
There was an adequate number of assignments, which were varied, and the company paid between £16 to £18 an hour to each contractor. However, before it could pay this, deductions were made such as for travel and hotel expenses.
To begin with, the company did relatively well and at its height, some 18 subcontractors were employed, with a turnover of in excess of £1 million. But, as it sought to expand, margins were reduced in an effort to win more work and this impacted on profitability.
The company’s reputation also suffered when complaints came in from clients who were unhappy about the standards of work that were carried out by certain subcontractors. Further issues arose when these clients withheld payment. This caused serious cashflow problems as the company had already paid its contractors.
There was more bad news when some of the more competent contractors were approached by a client to work for them directly. The director found it difficult to replace them with equally good employees.
Now with severe cashflow problems, the company was also faced with growing pressure from HMRC as its unpaid VAT liabilities spiralled and it was hit with penalties for non payment.
HMRC then issued a winding up petition for compulsory winding up. This left the director with no choice other than to stop trading. He contacted Company Debt, which assisted with securing an adjournment to be followed by entering into creditors’ voluntary liquidation.