Tags: Finance

Anger over LESG demise as fallout hits the fan

Thursday 28th September 2006 00:00

Suppliers, former employees and investors are among the victims after the self-styled "fastest-growing hotel business in the UK" went into administration two weeks ago with estimated debts of £40m. Emily Manson reports

While the administration of London and Edinburgh Swallow Group (LESG) hasn't surprised industry commentators, it has left many angry people in its wake.

With estimated unpaid debts standing at about £40m, the fallout from the demise of the self-styled "fastest-growing hotel business in the UK" is now beginning to emerge.

Suppliers' livelihoods are under threat after LESG racked up six-figure debts with individual companies, while some former staff say they haven't been paid for more than three months.

A spokeswoman for administrator Ernst & Young admitted the company owed tens of millions of pounds but wouldn't put a firm figure on the debts until the creditors' report is filed in two months. "Unsecured creditors will only get money back if there's money left after secured creditors, such as banks and owners of the business, are paid," she said.

Business in jeopardy

One supplier, Robert Loggie, managing director of vegetable supplier James Kippen, claimed he is owed significant amounts in unpaid LESG bills, and said his 80-year-old business was now in jeopardy because of the debts. "This could threaten our business," he said. "I have no idea how we're going to work through this, as I don't think we're going to see a brass ha'penny."

Only suppliers with insurance are likely to recoup their losses, warned Christopher Campbell, managing director of butchers Campbell's Prime Meat, which is concerned that it has been saddled with "six-figure debts" from LESG.

"We had always kept an eye on them as we recognised their expansion was extremely rapid and that's always cause for concern," he said. "We'll get the majority of our debts back as we have credit insurance, but without that, ordinary trade creditors rarely get anything. I would be very surprised if anyone who doesn't have insurance won't be in the same boat."

Former employees are also suffering the consequences of LESG's disintegration. Former executive chef and executive team member Robert Morley was dismissed on 15 September after 11 years' service with no notice and £2,000 in arrears on his salary. So far, a further 80 staff, many at the company's Maidstone head office, have since been made redundant.

Morley, who estimates the company has debts of at least £40m, said: "We're furious about the way we've been treated. A lot of people have been hurt by this."

Chefs owed wages

Michael Tough, proprietor of recruitment agency Chefs in Scotland, said 30 of his chefs at LESG properties were owed wages amounting to £70,000. "Before going into the hands of the receivers, LESG neglected to pay many chefs working for them for periods of up to three months," he said.

Since LESG went into administration, Tough has negotiated with new owner Flodrive for the chefs to be paid in full. But other LESG employees may not be so fortunate. The Ernst & Young spokeswoman explained: "Employees will be covered by insolvency legislation if any sites are closed down, but we're still talking to interested parties about selling part of the business and individual sites."

Philip Camble, senior manager at KPMG's hospitality division, predicted that smaller investors would lose out. "The properties which were not bought by Flodrive will be smaller and backed by local investors," he said. "Although the property market is quite buoyant and investors might hope for good prices for properties, there may be a fallout at the lower end of the market. Property prices in Scotland could well be driven down by the sudden glut of properties on the market."

Ernst & Young is still looking for buyers for 503 tenanted pubs, 118 managed pubs and 84 hotels from the LESG portfolio.

Alan Bowes, founder and chairman of the company, which grew in three years from 13 hotels to more than 180, called in the administrators on 15 September after admitting increasingly heavy losses.

Calling creditors

If you are an LESG creditor, send copies of your unpaid invoices and a covering letter to The Administrators: London and Edinburgh Swallow Group, Meadow House, Meadway Street, Maidstone, Kent
ME14 1HL

• Have you suffered at the hands of LESG? To tell us your experiences or comment on this story e-mail emily.manson@rbi.co.uk.


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