Collapsed debt management firm Smooth Financial Consultants used customer payments to fund a cashflow shortage in the business instead of passing the money to creditors, new documents have revealed.
Smooth Financial collapsed on 31 July this year after a winding-up petition issued by a former landlord resulted in the company’s bank account being frozen, preventing staff from being paid.
And the firm’s administrators have since identified a deficit of £848,690 between customer payments made to Smooth Financial and monies due to the creditors of these customers.
The deficit was revealed in a statement of proposals released by joint administrators Alan Coleman and Rod Withinshaw of Royce Peeling Green (RPG).
The administrator’s statement said: “In order to assist cash flow, it appears that the company utilised client account funds above the amount of monthly debt management fees due, to maintain trading.
“Payments to creditors have been delayed and the funds which should have been paid to creditors have been transferred to the company’s own current account to meet other costs of the business.”
Coleman told Credit Today the shortfall figure was the administrator’s current best estimate, but could not confirm whether any criminal investigations into Smooth Financial’s collapse are likely.
As a result of the shortfall, the administrators must now sift through the data of 3,500 customers to determine how many are owed money by Smooth Financial.
RPG’s proposals also revealed that the business experienced a reduction in its client base in 2012 and 2013, which coupled with high salaries and running costs caused the firm to arrange a Time to Pay agreement with HM Revenue & Customs to offset PAYE and national insurance arrears.
Smooth Financial subsequently relocated to a smaller office in June this year but was unable to renegotiate the lease on the former office in Sale.
The landlord of the Sale office, a firm named RPS II A LLP, subsequently issued a winding-up petition against the business on 1 July 2013 for a debt of £49,317.50, prompting the company’s bank accounts to be frozen on July 25 which resulted in the staff being made redundant.
Coleman and Withinshaw were then formally appointed on 30 July, the day before the business ceased trading.
The administrator’s statement also revealed that:
- A separate investigation has begun into the Smooth Financial customer database being offered for sale by a former employee
- A cash offer of £12m was received for the business on 3 August 2013 but was subsequently withdrawn
- Several companies connected to Smooth Financial – Contingence Limited, Smooth Investment Group Limited and Smooth Media Limited – may have been partially funded with customer payments to the debt management firm. The administrators are currently assessing ways to place these businesses into liquidation
A meeting of creditors will take place on 11 October at 10.00am at the Freemasons’ Hall, 36 Bridge Street, Manchester M3 3BT.
By Alex Cardno