Challenges Remain as UK ISP Origin Broadband Saved from Debt Pile

Credible sources have today informed ISPreview.co.uk that creditors have officially voted to rescue the Doncaster-based budget ISP Origin Broadband from its financial problems, which has already resulted in job losses and more may follow. But delivering on the recovery plan could prove to be challenging.

Origin has spent the past couple of years going through somewhat of a multi-million pound growth spurt and like so many others they did this by trying to attract customers via rock bottom prices, which always carries some risk (i.e. margins in the consumer broadband business are very low, but you still need a reasonable return to deliver good service and support).

Arguably one of the first official signs that Origin was struggling came in October 2018, when they unceremoniously gave a sizeable number of customers just 30 days’ notice to change ISP before being disconnected due to a “network restructure outside of our control” (here).

Not long after this we began receiving reports from staff members concerned about job losses (here) and the ISP’s PR department also went silent (some or all of them were made redundant). The reason soon became clear when, at the start of December 2018, it emerged that Origin’s Directors were in the process of trying to reach a Company Voluntary Arrangement (here).

The CVA is essentially an insolvency procedure, which allows a company with debt problems or that is insolvent to reach a voluntary agreement with its business creditors (i.e. paying them back over a fixed period). Assuming the creditors agree to such a proposal (i.e. it must be approved by creditors who are owed at least 75% of the debt) then the ISP would continue to trade.

Origin’s CVA revealed that the their “legacy systems and processes had been inadequate to deal with growth” and this had also resulted in “substantial bad debts.” Overall the ISP ended up with around £5m in “total unsecured creditors” and one of their biggest liabilities came from the £3.68m attached to Openreach (BT) for the provision of line rental and exchange services.

The company’s latest small accounts to the end of March 2018, which have just been published, offer some indication of the problem (these figures are older than those in the recent CVA).

In order to resolve this situation Origin’s CVA proposed make monthly contributions of £55,835 for a period of 36 months (starting January 2019), which comes to a total of £2,010,060 and their accountants could yet decide to increase those contributions for the final 3 months, if necessary.

On top of that Origin also proposed to cut their staff count by approximately 42% (hence the previous news), raise further investment of £2m and would even try to grow their base of residential subscribers. The latter is a difficult proposition in the current climate and with fewer staff to support it.

The proposal was put to a vote today and some of those involved have now confirmed to us that the deal was approved. Origin’s biggest debtor was understood to have already agreed to the terms, which meant that in many ways today’s vote was perhaps a forgone conclusion.

Unfortunately none of this seems likely to help those who are about to lose their jobs, many of which fear they will not get any redundancy pay and are furious at how the company management has handled the situation. Sadly such people tend to be at the bottom of the pile in these situations. Suffice to say that Origin once again finds itself facing a difficult road to recovery.