The demise of any firm that deals with consumers is likely to prompt press interest and emotional responses, and last week’s high profile collapse of wedding gift firm Wrapit was no exception.
Peter Gelardi, Wrapit’s managing director, blamed HSBC for the company’s demise, prompting last Wednesday’s faintly absurd nuptial-themed demonstration outside the bank’s headquarters at Canary Wharf.
There’s a lot to be said for blaming the banks in a range of circumstances, from the credit crunch to crafty bank charges, and HSBC certainly didn’t cover itself in glory, ring-fencing £1m of WrapIt's money when it became apparent that the company was teetering on the brink of bankruptcy.
Tightening the financial noose was probably enough to push the firm over the edge, and its management have claimed that the £1m would otherwise have been devoted to fulfilling orders.
But this wasn’t a small company brought down by short term cash flow issues or the tightening purse strings of a shell shocked banking sector. HSBC may well have blown the whistle by halting credit card transactions, but Wrapit had been failing to deliver promised gifts for up to 18 months as it drowned in spiralling administration costs of more than £2m a year.
Many observers have drawn comparisons to the collapse of Christmas hamper firm Farepak, and while its understandable if there’s not a similar outpouring of public sympathy for middle class couples bemoaning the loss of their fondue sets, it must be galling and embarrassing to know that guests’ hard earned has not been used to fulfil orders, but to keep a failing company afloat.
KPMG, who are carrying out the administration, are reportedly investigating if the firm was trading insolvently prior to its demise. The £6.6m in debts that have been uncovered are almost double the £3.5m HSBC originally estimated, and it’s thought that there is a backlog of £5m in unfulfilled orders.
While Wrapit floundered, the founders prospered, despite the fact that the £6m turnover company never turned a profit. While I don’t doubt the good intentions of Gerardi and co-founder Pepita Diamand, building up a backlog of eighteen months worth of unfulfilled orders and using consumer’s cash to keep the company afloat is hardly a good advert for entrepreneurship.
In this context, I fully support the accountancy giant’s call for a re-think in company director responsibility when it comes to advance payments. Ensuring money paid in advance for goods is protected if companies go bankrupt should help avoid a repeat of this kind of debacle.
© Crimson Business Ltd. 2008