Welcome Nurseries Ltd, which grew to be one of the largest nursery groups in the UK in just over three years, went into administration with estimated debts of more than £3.5 million.
The extent to which Welcome Nurseries Ltd was in debt to its creditors – including nurseries it had acquired, local authorities, energy suppliers and landlords among others at the time it went into administration – has been revealed in documents published by the administrators on the Companies House website.
Set up in June 2019, Welcome Nurseries Ltd expanded rapidly and at one point in early 2022 operated more than 40 nurseries.
According to information provided by a director at Welcome Nurseries for Nursery World's Nursery Chains, which was published in March, the company operated 48 settings, provided 5,125 registered places and had 750 employees.
The documents state that at the time Welcome Nurseries Ltd went into joint pre-pack administration in August, it owed nursery businesses it had bought using deferred payments an estimated £1,745,380.
In addition, ‘trade and expense creditors’ were owed an estimated £1,672,832. The administrators stated that these are estimated figures based on information provided to them by the company.
In addition, 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.
Immediately prior to the company going into administration there were 32 nurseries in England operated by Welcome Nurseries.
Begbies Traynor was appointed as administrator by director Linda Cuddy on 8 August 2022.
When the administrators were brought in, the company did not have sufficient funds to pay its staff wages.
The administration period
Asset valuer Hilco Valuation Services was contacted by the proposed joint administrators on 28 July 2022 and ‘were advised of the possible need for urgent assistance’ and subsequently instructed.
The details of a potential purchaser for the company, Simon Fox, were provided to Hilco on the basis of an acquisition through an insolvency process to facilitate restructuring of the business. It was also agreed that other known nursery operators should be approached directly, ‘although it was acknowledged that the available time and summer holiday period would make it very difficult to conclude a transaction with such a party prior to payroll being due.’
Fox was made aware of a ‘pressing need for the company to secure funding to pay the staff wages prior to 5 August 2022 or for a sale of the business and assets to take place otherwise it seemed likely that the nurseries would have to close and over 450 children would be left without childcare.’
The administrators approached several of the other large nursery groups in the UK in an attempt to strike a deal.
Direct approaches were made by email, according to the administrators, to 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.
Busy Bees, Bright Horizons and All About Children responded to Hilco.
According to the administrators’ report, Busy Bees ‘believed they were aware of the identity of the subject company and advised that they probably would not have had an interest in the majority of the sites even if sufficient time could be made available for them to carry out due diligence.’
Bright Horizons said it ‘would be unable to act in the time available’.
All About Children ‘advised that they were not sure that the business would be right for them’.
Twizel Tops Nurseries ‘advised that they would be willing to take on the two Essex based nurseries but for no consideration although they would meet the July payroll.
‘Hilco also made contact with Mr [Jonathan] Jay, the former director of the company and majority shareholder.’ Jay ‘advised that he was not interested in making an offer for the business but did refer Hilco to Twizel Tops (as above).’
Negotiations continued with Fox during the week commencing 1 August 2022 and culminated in an offer being received from Fox.
Twenty-six of the Welcome Nurseries and the company's head office were bought by Fox via a new company, Harp Group Limited, for £500,000.
The document states that the offer was made on the basis that:
- The purchaser would make an immediate loan to the company prior to administration in order that the company could meet the July payroll due to be paid on 5 August 2022.
- All employees of the acquired sites would TUPE transfer to the purchaser on completion.
- Payment of the consideration would not be conditional upon securing successful assignments of the nursery leases (either in part or as a whole).
- The purchaser would take on responsibility for the rent arrears of the transferring sites, as necessary to secure assignments.
- The purchase consideration would be paid in full on completion.
Background
The documents state that, ‘Mr Jay was a director and also a shareholder of the company's principal owner, Welcome Nurseries (Group) Ltd (“WNGL”). In the months prior to the administration, it is understood that Mr Jay instructed corporate finance advisers to approach potential interested parties with a view to selling his interest in the Company. It is understood that this process met with very limited success due to the lack of reliable financial information in respect of the level of liabilities of the Company.’
The company's accountants, Jeff Lermer & Associates (JLA), introduced Jay to Fox in July 2022. According to the administrators, ‘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. At this point having concluded that his investment in the company was of no value, Mr Jay resigned as director on 27 July 2022 and transferred his shares in WNGL to Mrs Cuddy.’
The report continues, ‘Mrs Cuddy maintains that having worked in the operational side of running the nurseries she was not aware of the day-to-day finances of the company. However, she was working closely with Mr Fox by this time in order to attempt to rescue the company or at least its business.
‘Due to the company's lack of sufficient funds to finance its payroll… Mrs Cuddy approached its accountant, JLA, for advice and he subsequently introduced her to Insolvency Practitioners, Paul Weber of Leigh Adams Limited and Asher Miller of Begbies Traynor when Mr Jay resigned.
‘…she made clear that should wages not be paid, staff would not attend work, the nurseries would not open and the business would cease to trade. Accordingly, it was imperative that the company's wages were paid to safeguard the business and the interests of the pupils, many of whom were from lower income families that were heavily reliant on childcare provisions.’
Reasons for the company's insolvency
The document states that ‘Mrs Cuddy explained that the Company had expanded rapidly during the Covid-19 pandemic and purchased 38 nurseries between April 2020 and September 2021. A significant number of these nurseries were purchased on deferred payment terms. The company utilised its cashflow to complete the purchases.’ During the pandemic, the head office was closed. Cuddy ‘advised that it was extremely difficult to put the necessary infrastructure in place to incorporate the newly acquired 38 nurseries. As staff returned to the office, significant sums were incurred’ to upgrade the head office.
Nursery World has repeatedly asked Begbies Traynor for comments on the administration process, including as to an expected date for its conclusion, but has received no response.
Unsecured creditors
The 96 unsecured ‘trade and expense’ creditors on the list include 35 local authorities. Medway Council is owed the most money at £48,378. When Nursery World contacted the council for a comment, it said, ‘The figure shown on the administrators’ paperwork has been overestimated. We have issued a proof of debt form which includes the amount due to Medway Council and the reason for the debt.
‘Future publications by the administrators will reflect the changes.’
They also include utilities companies such as E.ON – owed an estimated £4,674 – and Virgin Media, tradesmen, pest controllers, water suppliers, marketing companies, estate and lettings agents, surveyors and specialist resource companies.
Aside from local authorities, among the biggest ‘trade and expense’ creditors are estimated to be:
- Fielding Leisure Ltd (owed £240,000)
- Stanley Childcare (£200,000)
- Excel Childcare (HD8) Ltd (£182,000)
- Accountancy and consultancy firm Grant Thornton (£49,440). Grant Thornton was unable to provide a comment at the time of going to press.
Software provider Connect Childcare is also owed money. When contacted for a response, it said it was unable to provide a comment on the matter.
Harp did not purchase six operating sites. The sites were closed and 84 staff were made redundant prior to the joint administrators’ appointment. The documents state that there is ‘provision for their claims in the sum of £800 per employee for their preferential claims and £1,000 per employee for their unsecured claims’.
There are 84 employees listed at Companies House in the ‘Estimated Statement of Affairs’.
UNSECURED CREDITORS
A total of 19 nursery businesses are on the list of unsecured creditors as being bought by Welcome through a deferred consideration payment scheme, being owed an estimated total of £1,745,380.
Deferred consideration is a way of purchasing an asset, such as a business, which enables buyers to pay in instalments rather than the full cost upon completion of a sale.
The nurseries, in order of descending owed amounts, are as follows:
- 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 case
Some of the nursery businesses that Welcome Nurseries Ltd purchased through a deferred payment scheme and are owed money have come together to create the Welcome Action Group (WAG).
They were due to have their first meeting last week to discuss how to move forward with collaborative legal action.
The group, which is being led by Mandy Naylor, former operator of the nursery on Bramley Lane – and who remains the leaseholder – is hoping that more people in a similar situation will join them, by emailing their interest to: mn@mandynaylor.com
She exclusively told Nursery World, ‘I am very disappointed about how the total lack of communication from all parties has been handled.
‘I hope to hear from other people in the same situation so we can move forward.’
- The reports on Companies House are available here
