Anger is rising towards recruiters who put their businesses into administration or liquidation and return to trading shortly after, trailing unpaid bills in the wake of their flashy cars.

The heightened calls to government to take action came on the eve of the scheduled release (20 July) of a government report into how well tightened reporting requirements imposed on prepackaged administration cases at the beginning of the year had succeeded.

James Pritchard, managing director of JPA Recruitment, estimated that his business has had to write off £200k of unpaid debts over the last 12 months, with 50% of those stemming from instances in which recruitment companies have entered pre-pack deals.

In some pre-pack cases, directors of the failed company, their family members or close associates emerge as directors of the new company, which often has a very similar name to the old one. The new firm arises like the fabled phoenix bird from the ashes of the old one, which is why the practice is often referred to as ‘doing a phoenix’.

“Over the past 12 months the recruitment companies that we have placed with have been our worst payers and a lot have used a ‘phoenix’ situation to avoid HMRC and creditor payments,”

Pritchard told Recruiter. Pritchard went on to add that some directors in the market see insolvency procedures “as a game to build up personal wealth to the detriment of others”.

Following requests from Pritchard and other members, the Recruitment and Employment Confederation (REC) recently called on the government to deal with concerns over companies which repeatedly abuse insolvency procedures to write off their debts and set up a new business.

In a prepared statement, Fiona Coombe, the REC’s director of professional services, said: “There are occasions when it is quite legitimate for an agency that is in financial difficulty to file for insolvency. Where we have concerns are situations where this kind of ‘phoenixing’ is used systematically and repeatedly, often leaving individual workers out of pocket.”

The tightened reporting requirements imposed by the Insolvency Service in January on pre-packs mean that administrators must provide details about any connection between old and new owners and how much was paid for the business, among other points.

BARKERS PRE PENNA

The recent placement into administration of recruitment advertising agency Barkers, before its sale to Penna, has also caused financial distress
to former employees and creditors - although it does not reflect a ‘phoenix’ situation. As many as 250 former employees who were maderedundant before the firm went into administration have not been able to receive redundancy payments.

Lower paid workers should be able to obtain some government payments, but higher-paid workers will likely “fall short”, administrators confirmed to Recruiter. Colleagues in the recruitment advertising agency have started a fund-raising effort, RecAid, to help the former Barkers employees.

The amount of money owed by Barkers to various media outlets for recruitment advertising before the sale has not yet been determined, administrators said.