A subcontractor that was owed a six-figure sum after the collapse of offsite firm Merit says it was pushed to the brink after payment dried up last year on an NHS hospital project.
The firm’s director, who asked not to be named, spoke out about his experience after Construction News reported last week that Merit’s directors had started a new business using the Merit name.
Administrators for Merit Holdings last month said they were “unlikely” to recoup the £17.4m owed to unsecured creditors.
The subcontractor’s director said: “At one point I was worried about paying my mortgage. I was worried about being able to pay staff.”
He said his firm stayed on site last year despite mounting concerns about Merit’s financial health due to the critical nature of hospital work and qualms about walking away from an NHS project.
“We are not the sort of company that walks off a job,” he told CN. “You do not just down tools.”
He said alarm bells rang from the first valuation, after his firm spent four months on site but experienced payment delays.
The subcontractor said Merit repeatedly assured him that payments were imminent and blamed temporary cashflow issues, a situation he said is common across the industry.
“It was hard to pick up that there was a bigger problem because we often have cashflow pressures ourselves,” he said.
The director said his firm continued paying its own staff using money from other projects and dipping into its own resources to cover losses.
“We were robbing Peter to pay Paul,” he said. “We moved money across from other jobs just to keep people paid.”
He said the business survived only because it had other clients and a large order book in other sectors.
“NHS trusts were paying Merit as principal contractor,” he said. “The question everyone is asking is: where did the money go?”
He said he had raised concerns directly with the NHS trust that employed Merit as the main contractor.
“They are fantastic people,” he said. “But they told us there was nothing they could do.”
Less than two months after Merit Group Services and related companies called in administrators, a new company led by the firm’s managing director Tony Wells, called Merit Industrialised Construction, bought Merit out of administration.
Merit Group Services’ other listed directors Kirsty Wells, David Philip Wilkinson and Matthew McGrady also joined the new firm, according to information on the Companies House website.
In a statement provided to CN, Merit Industrialised Construction said it had bought “some limited assets” of Merit, and that it had not procured Merit as a going concern – meaning it did not take on the old firm’s liabilities, debts or staff.
The statement added that the new business would “utilise selected intellectual property, design systems and manufacturing know-how acquired from [Merit Holdings’] administrators” to service the design and construction markets.
The new firm is backed by Modulex Modular Buildings, a global modular construction group supported by London-based Red Ribbon Asset Management, and HBEM, a US-based firm specialising in high-tech manufacturing environments.
Tim Symes, an insolvency partner at Stewarts Law, told CN he accepted that creditors left with debts may feel Merit “should have instead ‘faced the music’ and paid its creditors”.
But he added: “The alternative of the old company not entering into a pre-packaged administration sale could have been worse for creditors because it would end up in liquidation,” meaning the assets would likely be sold on a “much lower-value break-up basis”.
In a statement, Wells said the administration of his old businesses “was a difficult outcome and resulted in the loss of a significant manufacturing presence in the region”.
The Merit Industrialised Services statement said Merit’s administration had “understandably caused concern among supply-chain partners, customers, project teams and employees”.
The firm added: “We recognise the uncertainty this situation has created and the significant impact it has had on those affected.”
It said Merit’s former businesses could not find a solvent solution to financial pressures after working with administrators at Interpath, and took the decision to appoint administrators.
The new firm added: “We fully respect the concerns of creditors and recognise the disruption caused by the administration process.”
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Joshua Stein