With estimated debts of more than £3.5 million, Welcome Nurseries Ltd., which in less than three years became one of the largest nursery firms in the UK, entered administration.
The administrators’ documents posted on the Companies House website have disclosed the size of Welcome Nurseries Ltd’s debt to its creditors, which included nurseries it had acquired, local governments, energy providers, and landlords among others at the time it entered administration.
Established in June 2019, Welcome Nurseries Limited quickly grew, and by the beginning of 2022, it was operating more than 40 nurseries.
Join administrators report on Welcome Nurseries Limited
According to the reports, Welcome Nurseries Ltd owed an estimated £1,745,380 to nursery companies it had acquired using deferred payments at the time it entered joint pre-pack administration in August.
Also owing were an estimated £1,672,832 to “trade and cost creditors.” Based on data the corporation gave them, the administrators claimed that these numbers are approximations.
As of 8 August, Welcome Nurseries was estimated to owe its employees, ‘preferential creditors’, a total of £67,200. As of the same date it was estimated to owe HMRC, its ‘secondary preferential creditors’, the sum of £963,071.
32 nurseries in England were run by Welcome Nursery at the time the firm entered administration.
On August 8, 2022, director Linda Cuddy appointed Begbies Traynor to the position of administrator. When the administrators were hired, the company lacked the money to pay the salaries of its employees.
The administration period
The potential joint administrators called asset valuer Hilco Valuation Services on July 28, 2022, and “were told of the likely need for urgent assistance” before giving them instructions.
On the basis of an acquisition through an insolvency procedure to help corporate restructuring, Hilco was given the contact information of Simon Fox, a potential buyer for the company. Other well-known nursery operators should also be contacted directly, though it was noted that it would be challenging to close a deal with one of them before payroll was due given the time constraints and summer vacation season.
Fox was informed that there was a “urgent need for the company to acquire funds to pay the staff salary prior to 5 August 2022 or for a sale of the business and assets to occur otherwise it seemed likely that the nurseries would have to close and over 450 children would be left without childcare.”
In an effort to reach an agreement, the administrators contacted some of the other significant nursery groups in the UK.
The admins claim that Busy Bees, Bright Horizons, Kids Planet, Monkey Puzzle Day Nurseries, Just Childcare, Childbase Partnership, Grandir UK, ICP Nurseries, Co-operative Childcare, and All About Children were directly contacted through email.
Hilco received responses from Busy Bees, Bright Horizons, and All About Children.
Busy Bees “believed they were aware of the subject company’s existence and advised that they probably would not have had an interest in the bulk of the sites even if sufficient time could be made available for them to conduct out due diligence,” the administrators’ report states.
According to Bright Horizons, “the time available” would prevent it from taking action.
All About Children ‘indicated that they were not confident that the business would be good for them’.
Twizel Tops Nursery informed that although they would cover the July payroll, they would be willing to take on the two Essex-based nurseries for no payment.
“Hilco also got in touch with Mr. [Jonathan] Jay,” a former director and substantial stakeholder of the business. Although not being interested in making an offer for the company, Jay did recommend Twizel Tops to Hilco (as stated above).
On the week beginning August 1st, 2022, negotiations with Fox went on and on until an offer was made by Fox.
Twenty-six of the Welcome Nurseries and the company’s head office were bought by Fox via a new company, Harp Group Ltd, for £500,000.
The offer was made, according to the paper, on the grounds that:
- Before going into administration, the buyer would provide an urgent loan to the business so it could pay its July payroll, which was due on the 5th of August 2022.
- The purchaser would TUPE transfer all personnel from the acquired sites after completion.
- No successful assignment of the nursery leases would be required in order for the consideration to be paid (either in part or as a whole).
- To ensure assignments, the purchaser would assume liability for the transferring sites’ rent arrears.
- The purchase consideration would be paid in full on completion.
Background and events leading up-to the administration
According to the documents, Mr. Jay was a shareholder as well as a director of the company’s primary owner, Welcome Nursery (Group) Ltd. It is believed that Mr. Jay sent instructions to corporate finance advisers to contact possible buyers in the months before the administration with a view to selling his position in the company.
It is thought that this method had very little success because there was a lack of trustworthy financial information regarding the extent of the Company’s liabilities.
Jay was introduced to Fox by the company’s accountants, Jeff Lermer & Associates (JLA), in July 2022. “Following a period of due diligence, the extent of the Company’s liabilities and cashflow shortages, in particular the forecasted lack of sufficient funds to meet the July payroll due at the beginning of August 2022, became apparent to Mr. Fox, and he subsequently withdrew his interest in conducting a solvent purchase of the Company,” the administrators write.
Mr. Jay decided at this point that his investment in the company had no value, therefore he handed his WNGL shares to Mrs. Cuddy and resigned as a director on July 27, 2022.
“As a result of the company’s inability to pay its payroll,… When Mr. Jay resigned, Ms. Cuddy went to its accountant, JLA, for guidance, and he later introduced her to insolvency practitioners Paul Weber of Leigh Adams Limited and Asher Miller of Begbies Traynor, who offered insolvency advice for the nursery group.
She made it plain that if wages weren’t paid, employees wouldn’t show up for work, the nurseries wouldn’t be open, and the company would shut down. In order to protect both the company’s interests and those of the students, many of whom were from lower-income families who relied largely on childcare services, it was essential that the company’s wages be paid.
Reasons for the company’s insolvency
According to the letter, “Mrs. Cuddy indicated that during the Covid-19 pandemic, the Corporation had swiftly expanded and bought 38 nurseries between April 2020 and September 2021. A sizable portion of these nurseries were bought with deferred payments. The business used their cash flow to finish the transactions.
The corporate headquarters was shut down during the pandemic. Cuddy cautioned that building the necessary infrastructure to accommodate the newly purchased 38 nurseries would be quite challenging. Once employees came back to work, large expenses were made to modernise the headquarters.
Read more: Failed Ofsted inspection – what next?
Welcome Nursery’s creditor list
35 local authorities are among the 96 unsecured “trade and expense” debtors on the list. The debt owing by Medway Council is the largest at £48,378. The council responded to Nursery World’s inquiry by stating, “The sum shown on the administrators’ papers has been inflated.” A proof of debt document that details the sum owed to Medway Council and the cause of the debt has been issued.
“The adjustments will be reflected in future publications by the administration,” it says.
These also include tradespeople, pest controllers, water suppliers, marketing firms, estate and lettings brokers, surveyors, and specialised resource firms. Utilities like E.ON and Virgin Media are among them; they owe an estimated £4,674 in debt.
Other than authorities, the following are believed to be the largest “trade and expense” creditors:
- Fielding Leisure Ltd (owed £240,000)
- Stanley Childcare (£200,000)
- Excel Childcare (HD8) Ltd (£182,000)
- Grant Thornton, an accounting and consulting firm (£49,440)
Also owing money is the software provider Connect Childcare. In response to a request for comment, it stated that it was unable to do so.
Harp didn’t buy the six active sites. Prior to the joint administrators’ appointment, the sites were shut down and 84 employees were laid off. According to the records, “provision for their claims in the sum of £800 per employee for their preferential claims and £1,000 per employee for their unsecured claims” has been made.
The “Estimated Statement of Affairs” at Companies House lists 84 employees.
The list of unsecured creditors includes 19 nurseries, with a combined debt of £1,745,380, that were acquired by Welcome through a delayed consideration payment plan.
Delayed consideration is a method of buying an asset, such a business, that permits buyers to pay in installments as opposed to the entire amount at the time the sale is finalised.
The nurseries are listed below in decreasing order of how much is owed:
- Tilly Tots – £200,000
- Clayton West – £200,000
- Kidstreet Nursery – £174,000
- Thrybergh – £120,000
- Little Saints – £120,000
- Meanwood – £100,000
- Bramley Lane – £90,000
- Greetland – £85,000
- Alfreton – £83,725
- Millstone – £80,000
- Old Hall – £75,000
- Moor Park – £71,250
- The Stables – £70,000
- Smarties – £62,500
- Christian Nursery (Wellingborough) – £50,000
- Padgate – £50,000
- Birkenshaw – £37,500
- Eastham Rake – £30,000
- Butterflies – £26,126
Group prepares legal action
The Welcome Action Group was formed by a few of the nursery companies that Welcome Nurseries Ltd bought through a deferred payment plan and are owed money (WAG).
They were supposed to meet for the first time last week to talk about how to proceed with a cooperative legal action.
The organisation is hoping that additional individuals in a similar circumstance would join them. The group is being led by Mandy Naylor, the former owner of the nursery on Bramley Lane and who is still the leaseholder.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.