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Focus collapse leaves businesses out of pocket

Collapsed DIY chain Focus entered administration owing at least 60 East Midlands businesses hundreds of thousands of pounds, Insider can exclusively reveal. The beleaguered company owed more than £1bn to businesses, shareholders and funders when it entered administration last month, according to a new report from joint administrators at Ernst & Young.

Hundreds of trade creditors from across the UK are expected to be about £60m out of pocket, while HM Revenue & Customs (HMRC) will take a £7m hit.

Among the East Midlands companies affected by the collapse are Derbyshire's Aggregate Industries, which is owed more than £490,000. Divisions of Nottinghamshire-based Fiskars UK are out of pocket a total of more than £898,000. Top Dog Distribution, based in Grantham, also stands to lose more than £268,000.

Many more businesses were owed sums running into the hundreds of thousands.

The report, published by EY's Simon Allport, Tom Jack and Alan Hudson, provides a snapshot of the Crewe-headquartered company's affairs on 5 May 2011, the day they were called in by its directors.

It reveals that the £1.8m due to employees for overtime and holidays should be paid in full, but millions owed to other creditors, including Focus' private equity owner Cerberus, is unlikely to ever be recovered.

As secured creditors, Cerberus and GMAC Commercial Finance are owed £214.7m and £31.7m respectively. Although the sale of Focus assets is expected to generate more than £43m, it won't be sufficient to pay them back in full or allow for distribution among unsecured creditors.

The report from EY lists 19 pages of trade creditors, ranging from garden products suppliers and wallpaper manufacturers to landlords and local councils. Companies that will lose out include Draper Tools and TNT Post.

The total amount owed to trade creditors is expected to be £61.4m, while landlords are owed £193.9m and HMRC is owed £7.7m. The deficit to the company's pension scheme will be in the region of £19.4m.

Taking into account the significant inter-company loans of £347m, the estimated deficiency to non-preferential creditors (excluding any shortfall to floating charge holders) will be about £649m. When shareholders and secured creditors are added to this, the estimated total deficiency to members is thought to be £1.09bn.

Since the date of the statement of affairs on 5 May, EY has sold a string of the chain's 178 stores to the likes of Kingfisher, Travis Perkins and B&M Retail. But of the remaining 122 unsold stores, only one of them will still be trading by the end of today (22 June). Focus employed more than 4,000 staff at the time of the administration.

In a statement, the administrators said they were "continuing to seek proposals for all unsold stores" and remained "hopeful" that more deals could be done. However, they declined to comment on Focus' financial position at the time of the administration.
Focus can trace its roots back to 1987 when Bill Archer bought Choice DIY, a chain with six stores in the north and Midlands. The business acquired Wickes in 2000 in a deal worth £296m before selling it five years later to Travis Perkins.

After struggling under a large debt burden, Apax Partners and Duke Street sold Focus to Cerberus for £1 in 2007. It was previously saved from entering administration three years ago when its landlords accepted a company voluntary arrangement proposal.

Source : Insider Media Limited

22 June 2011
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