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£2m loss pushed Ageas Bowl hotel construction firm Denizen into adminstration
IT was the dramatic collapse of a firm that brought one of Hampshire’s biggest and most controversial taxpayer- funded building projects to a grinding halt.
Work on a luxury Hilton hotel at the Ageas Bowl stopped suddenly and dozens of people lost their jobs when contractors Denizen plunged into administration three months ago.
Documents leaked to the Daily Echo now reveal that the company, which was suffering “cash flow problems”, went bust after bosses revealed they would lose more than £2m by completing the project at the home of Hampshire cricket.
It comes after this newspaper revealed how uncertainty still surrounded the future of the scheme more than three months after builders downed tools with no date set for work to recommence.
The documents also show how Hampshire companies are owed a combined £761,000 as a result of the dramatic collapse.
And now questions are being asked about what preliminary checks were carried out by Eastleigh Borough Council, which is underpinning the whole scheme with £27m of tax payers’ cash.
As previously reported, the gates of the construction site were locked up overnight with little warning sparking confusion among those employed to carry out the work.
There has been no date set since for building work to get under way, though frantic efforts are being made to find a new contractor.
The Co-operative Bank is paying for the upfront costs while the council has pledged to hand over a set amount of public funds to buy the completed project – and have vowed not to part with a penny more than what has been agreed.
But more than £4m is now owing to firms around the country following the demise of Denizen, which was working on just three projects around the country when it collapsed.
Other outstanding debts in Hampshire range from just £88 to nearly £80,000.
The details are included in a report to creditors drawn up by the company dealing with Denizen’s administration, Duff and Phelps – and shown to the Daily Echo this week.
And the revelations have sparked questions over what measures were taken prior to Denizen taking on the contract.
Eastleigh Borough Council spent more than £3m on consultancy fees, advice and service costs ahead of building work getting under way in 2012.
Opposition Tory leader Godfrey Olson said: “It is unfortunate that we find out that perhaps the right checks were not done or certainly that the position of Denizen was not known.
“I have a lot of sympathy for the companies that have missed out,” he added.
“What would be the effect if everybody said ‘we are not going to fund the rest of the building work’? Are we then going to have a shell of a building absolutely destroying what is a delightful setting for the cricket because nobody will stump up the millions it is going to cost?”
The document charts how administrators were brought in on October 3 by company directors.
Set up in 2007 to provide construction services to the hotel industry, the firm was working on projects at the Ageas Bowl as well as in Sheffield and Southport at the time of its collapse.
The report states that Denizen had negative net assets of £1.4m in the six months leading up to June 2013 – as the building of the hotel was gathering momentum.
The directors then started to experience “cash flow problems” due to worsening economic conditions and a fall in demand for new hotels.
Fall in demand An increase in competition was also blamed as it meant the company “submitted very competitive tenders in order to win work which coupled with increased costs resulted in losses on fixed price contracts”.
In September 2012, the report says, the directors reviewed the progress of the Southampton site and found that costs required to complete the site would result in a loss exceeding £2m.
The Co-operative Bank, which has been providing upfront costs for the scheme, had earmarked £21m for the construction.
Around £13m of this facility had been drawn by the time Denizen went into administration, the report says. And when bank bosses became aware of the firm’s financial difficulties, it withdrew further funding.
The report states: “Due to the financial situation of the Southampton development, the directors took the decision to close the site and make all of the Southampton employees redundant on 27 September 2013.”
Eastleigh Borough Council has promised to hand over more than £27m of public money to buy the hotel once it is complete.
But, as reported, there are no guarantees when work will start again and the site is locked up with scaffolding and tarpaulin covering parts of the incomplete hotel.
Behind the scenes, it is believed that a new contractor – believed to be a major player in the industry – is close to taking on the project.
The council has already paid around £3.4m upfront in consultancy and services fees and has bought the ground the hotel sits on for £1.1m.
It has pledged not to pay a penny more than the agreed fee – even if the cost of finishing and fitting out the hotel spirals to more than first anticipated.
The Liberal Democrat-controlled authority also controversially agreed to buy the lease of the 167-acre Rose Bowl site for £6.5m in 2011.
A council spokesperson said of the administrator’s report: “Denizen had a good track record of building high quality hotels across the country and the council was satisfied that they were capable of constructing a four star Hilton Hotel that the council would ultimately purchase.
“The building contract was between the funders and the builders and the council was not party to this contract.
“The council and council taxpayers are totally protected against this construction risk. We are continuing to work with the funders to secure work on the site.”
A spokesman from the Co-operative bank said due diligence was carried out at the time contracts were signed.
He added: “We have been impacted by the failure at Denizen and are working closely with all the key stakeholders who are in a position to help to find a solution.”
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