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By | Mark Ballard 9th February 2007 18:17

Watford Electronics left debts of £3.5m

Administrators hang on to stock

Watford Electronics’s stock remains in the hands of administrators, giving unsecured creditors hope of seeing some of the £3.5m they were owed when the firm collapsed earlier this week.

Watford's cards had been marked since November when it released a troubling set of accounts and trade insurers started putting the squeeze on its credit lines with suppliers.

But distributors were talking to the PC firm's directors about finding a way for it to trade out of its troubles even as recently as last weekend.

Watford's directors failed to return calls placed by The Register this week. However, the firm's financial controller told The Register on Monday that "business is normal" and "the rumours are not true".

But on Wednesday, Watford Electronics went into administration. At 3.30pm that same afternoon, according to a statement posted on the firm's Savastore website that day, a firm called Globally Ltd "purchased the business of Watford Electronics".

Globally had been established just days earlier, according to Companies House. Its registered address is Jessa House, 1 Finway, Luton. Watford Electronics/Savastore also operates from that address.

The Register has established that Globally did not buy Watford's stock and that what there is of it is expected to go a long way to paying creditors.

Unsecured creditors are owed in the region of £3.5m, and are dependent for any return on a condition administrators put on Globally's purchase of Watford and that holds Globally to pay more money to creditors if they have any success with their phoenix venture.

A statement from Watford’s administrators, Smith & Williamson, said: "Shortly after the Company entered Administration, we received an offer for the goodwill and chattel assets of the Company from Globally Limited."

"Following a review of the Company’s financial position, we concluded that there would be no benefit in continuing to trade through the Administration given the significant liabilities that the Administrator was likely to face."

Alasdair Manson who works for Smith & Williamson, confirmed that Globally had been allowed to buy “goodwill and chattel” assets of Watford Electronics for a "token" sum ".

“I've no doubt creditors will get value in due course on the basis that the stock still remains to be released and wasn't included in the deal," he said.

"Any deal that could have been completed by the administrator would have been linked to profitability going forward. If Globally makes a significant profits then additional monies will come back to the creditors," said Manson.

The writing first began appearing on the wall 11 November last year when Watford published its accounts for the year to 30 September 2005.

Though it had grown turnover 30 per cent to almost £50m and as still one of the best known names in the indigenous PC industry it made pre-tax profits of £122,675 After tax and amortization it made £51,800 - a 1 per cent profit margin.

The figures also showed it had "identified" £105,141 of trade debt "not cleared in prior years".

Together with "write-offs", this meant a "total prior year adjustment" of £199,913.

Trade sources say that in the wake of these figures, credit insurers, led by Euler Trade Indemnity started cutting back Watford's insured cover carefully, so as not to frighten anyone into a rout. Euler refused to comment.

The whole channel was rooting for Watford, not the least because it would have been better for everyone if it had been able to trade out of its troubles and keep buying local stock to the tune of £50m.

Andrew Child, director of credit insurance broker Aon Trade Credit, said credit insurers were keen to do what they could for Watford.

"There were meetings discussed with [Watford's] directors. There was a decision to keep the company afloat," he said.

But the meetings, which were scheduled last week, were cancelled at the last minute without explanation.

After the collapse of names such as Tiny, Time (Granville), Elonex and now Watford, Britain's once hopeful PC industry has been crushed by competition from international behemoths.

The thing all these firms had in common said Sukh Rayat, European boss of components supplier Avnet, was that they were all having to compete with "the big guys."

He blamed the manufacturers of the components that go in the PCs for sucking up to the global PC makers and making a rod for their own back.

"The vendors let it happen," he said, "And now the vendors are in the corner as well because the tier ones have got the power. It's a real vicious circle."

The managing director of another PC components distributor said the thing the recent collapses all had in common was the poor relations they managed with their creditors - they crossed their fingers and hoped for the best when they saw the ship was going down instead of turning to their closest allies - their suppliers - for help.

"We work very well with particular companies that are working appropriately, but we tend to be aggressive in these situations - where there's more transparency we work with them," he said.

Computer 2000, which with around £450,000 unpaid is thought to be Watford's largest creditor, had been taking that approach until the surprise arrival of administrators, said Phil James, the distributor's commercial manager.

"I would say that there's still room for these guys, but it's a concerning time for them," he said of the British PC and consumer electronics retail sectors.®

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