Sources suggest the banks were wary of the firm’s optimistic figures

News this week that the collapsed social housing firm had a £42m black hole in its accounts has been followed by further revelations about why the banks rejected its three-year rescue plan.

Building revealed last week that the plan required the RBS-led group of lenders to inject £50m within a month to keep the company afloat.

Building understands the plan was based on the assumption Connaught would make a profit of £17m on turnover of about £450m by year three. One source close to the administration process said: “The banks realised those figures were optimistic. Another major flaw in the plan was that the Connaught name was already damaged.”

Morgan Sindall’s Lovell arm is providing emergency repair work on the £17.5m deal Connaught started with Norwich council in April after a legal challenge by losing bidder Morrison, which alleged Connaught’s bid was “abnormally low”. According to both sources, the job will make a £2m loss this year.

Although Morgan Sindall took on the bulk of Connaught’s contracts, Building understands some councils may make alternative arrangements. One source said: “I think Morgan Sindall will still see it as a good deal if only 50% of the contracts went across to it, if they were the more valuable ones. It did its homework on this deal.”

Question marks have been raised by some over the fact Morgan Sindall paid out £28m after a relatively short period of due diligence. One losing bidder said: “Given all the extra money Morgan Sindall will have to throw at the company, I do wonder how it will make this deal pay any time soon.”

Morgan Sindall declined to comment.

Meanwhile a series of probes could be launched into the collapse. Connaught faces a business department investigation if evidence is found of wrongdoing. The Actuarial and Accountancy Discipline Board will decide “within weeks” whether to probe auditors Pricewaterhouse Coopers. Meanwhile, it has emerged that the Financial Reporting Review Panel asked Connaught’s directors to clarify its accounts after a profit warning on 25 June.

 

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