The chain of events which led to the collapse of a Newcastle construction company – owing more than £4.5m to creditors – has been laid bare in newly published documents.
FRP Advisory’s Steven Ross and Allan Kelly were appointed as joint administrators of Kapex Construction in August, several weeks after the company had called in advisors.
The company, formed in 2016, was the contracting arm of The Morton Group, which specialises in land acquisition, property development and construction.
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An administrator’s proposals document has been filed at Companies House, in which Mr Ross and Mr Kelly say that as it has ceased trading, their objective now is to realise property to make a distribution to one or more secured or preferential creditors.
The new document also lists more than 260 company creditors, including many North East supply chain firms, which are collectively owed £4,547,474.
Yet while Kapex Construction’s statement of affairs shows the company owes £1 to finance company Mysing, and a total of £4.5m to creditors, administrators estimate the figure is closer to £6.8m following correspondence from Mysing.
The report says: “The draft directors Statement of Affairs shows Mysing owe £1 but the administrators have received correspondence indicating they are in fact owed circa £2.08m in relation to monies advanced and cross guarantees.”
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The administrator’s progress report includes a statement sent by director Gary Morton, which outlines how the pandemic led to huge problems within the construction sector as a whole, with projects for third-party clients being paused.
To maintain revenue levels, Mr Morton’s statement says the firm tendered for an increase in third-party contracts, but “because of the pandemic, third-party project profitability fell dramatically and two third-party projects fell into arrears, leaving Kapex around £750,000 out of pocket”.
In the report, the administrators outline how the firm approached existing equity partner Mysing, which provided new funding of circa £1.5m to the company, which was used to bring creditors back into terms “where possible”.
The report says: “However following payment, we understand a number of suppliers and subcontractors immediately withdrew credit limits and/or or required ongoing supply to be paid on a pro-forma basis. This led to a further unplanned cash requirement during mid to late June 2021.
"During late June/early July 2021 rumours also began circulating that staff had not been paid and a number of contractors left the sites and end customers began withholding payment further compounding cash flow.”
The report says Mr Morton was attempting to refinance the group, so when a Notice of Intention (NOI) to appoint Administrator was filed on July 23, “the director was unwilling to sign the document” and it lapsed. Finally, when a further NOI was filed five days later, Mysing consented to the appointment and FRP was officially appointed on August 20.
Despite the lengthy list of creditors – which includes around £800,000 to HMRC – the administrators warn: “It should be noted that there is material uncertainty regarding the anticipated level of realisation in this matter which will affect the outcome for creditors.
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“Based on the information currently available, the administrators think that the company has insufficient property to enable a distribution to be made to unsecured creditors, except from the prescribed part if applicable.”
Kapex Construction had been working on a number of schemes in the region, including Sycamore Square, a housing development on the site of the former Sanderson Hospital site at Gosforth, and the conversion of the former Regent Centre’s Eagle Star House office into Regents Plaza, a £15m apartment scheme.
Other projects included Eldon House at Gosforth’s Regent Centre, which has been undergoing a £5.4m transformation to redevelop the former vacant office building into 66 luxury apartments.