Red Letter Days still in the Red

Last week was a painful anniversary for me - 1 August 2005 was the date my first company Red Letter Days went into administration, 16 years after I founded it.

An administration which could have been avoided had I managed to raise £2million in equity to match a bank finance offer from HBOS of £2million before I ran out of time. The company of course already had £3.3million cash at bank (most of it held in bond by Barclays which they wouldn't let us touch) so the additional injection would have given it the liquidity it needed to trade through, correct its various problems and then float on AIM.

Interesting therefore to see the latest accounts of the new Red Letter Days just filed - which show a £2.8million loss to 30 September 2007 - that's cumulative losses of nearly £10million (£13million if you exclude the £3million handed to the new owners on a plate by Barclays) since the company was acquired out of administration for the 'bargain' price of £250k.

Losses which are, of course, still being blamed on the old company, despite the fact that most of the old company's vouchers expired on 31 July 2005 and those remaining in retail all expired well before the end of the previous accounting period.

The sad fact is that pushing an ailing company through an administration process is a really tempting trap. The thinking goes: wipe the debt, take the brand and everyone's a winner - except of course the old owners.

The reality is that the administration process DESTROYS huge amounts of value.

In Red Letter Days' case, as a result of the high profile media fallout the brand was severely damaged, it caused a run on voucher claims - which the voucher owners would probably have forgotten about if the crash hadn't been so high profile - and the majority of the suppliers had to be paid out anyway because there is a finite number of experience suppliers in the UK, and these suppliers refused to honour any new bookings unless all old debts were paid.

Think how much cheaper it would have been for the new owners just to have injected the £2million equity required (which, under the circumstances, would have secured a massive equity stake), let the company recover and then sell it on a year or two later at a massive premium (our Brokers predicted, given the profile of the brand, that the float value would have been c£25million).

But then sometimes greed just gets the better of people.

An expensive mistake to make!

And a reason why I urge the government to review the current administration and insolvency laws - which often act against the growth of UK enterprise.