Financial Concerns for UK ISP Origin Broadband After CVA Proposal

The Directors of Doncaster-based budget ISP Origin Broadband, which last week hit the headlines due to staff redundancies (here), are now in the process of trying to reach a Company Voluntary Arrangement (CVA) with its creditors. Documents seen by ISPreview reveal that Origin has around £5m in “total unsecured creditors“.

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 will continue trading.

According to the documentation, Origin have appointed “business recovery professionals” Chamberlain & Co (chartered accountants) to act on their behalf in this matter and to draw up the necessary proposal (hence creditors now being notified of the CVA proposal). A vote and decision to approve or reject the CVA is due to be taken on 20th December 2018.

Prior to its growth spurt Origin is said to have had 4,000 residential customers in November 2016, which more recently peaked at 36,000, although apparently their “legacy systems and processes had been inadequate to deal with growth,” which is said to have resulted in “substantial bad debts” of £884K in the period ended 31st March 2018 (a full year loss of £7m is listed for this period), with a further £883K in the year to date.

The company has also ended up with some historic liabilities. For example, the biggest liability reflects £3.68 million attached to Openreach (BT) for the provision of line rental and exchange services. The company is said to have made some “force majeure” or essential payments to a number of key suppliers in order to ensure the continuation of business up to the date of the CVA meeting.

Elsewhere Origin’s unsecured creditors list also includes HMRC, Affiliate Window (legal claim), landlords (rent / loans), employees, trade creditors and so forth. In response the CVA proposes that, among other things, Origin should make monthly contributions of £55,835 for a period of 36 months (starting January 2019), which comes to a total of £2,010,060 but the accountants could yet decide to increase those contributions for the final 3 months.

On top of that Origin is also proposing to cut their staff count by approximately 42% (hence last week’s news), raise further investment of £2m (apparently a deal could come next month) and will try to grow their base of residential subscribers (a difficult proposition in the current climate and with fewer staff to support it).

In theory Origin could still pull itself out of the mud. Nevertheless the situation will no doubt cause concern for both customers of the service and all those staff in the redundancy pile, particularly as it comes just a few weeks before Christmas (one of the most expensive times of the year).

Should the CVA be rejected by either shareholders or creditors, Origin will need to consider alternative insolvency options. Sometimes creditors feel that better returns would be achieved using a different option, or assume that compulsory liquidation is the preferable route, although this is generally not the case in practice.

Over the past couple of weeks we have repeatedly tried to reach Origin for a comment or clarification but the response continues to be one of silence.