The boss of a defunct training provider has declared bankruptcy as the government seeks to reclaim over £20 million from his firm following a subcontracting scandal.
SCL Security Ltd, founded and run by Andrew Merritt, went insolvent in October 2020 after the Education and Skills Funding Agency kicked the company out of the apprenticeship market.
The decision followed an audit, prompted by several FE Week investigations, which found apprenticeship funding was being used to pay the wages for the 16-to-18-year-olds, which is strictly against the funding rules.
A liquidators’ statement for SCL Security was published this week and revealed its debts have ballooned seven-fold over the past year, from an initial £3.85 million to £26.3 million.
The uplift in claims “predominantly relates to claims arising as a result of the ESFA review in respect of monies paid by a number of colleges and agencies”, the report said.
Brooklands College subcontracted out more than £20 million to SCL Security over a three-year period and had faced having to repay a similar sum to the ESFA following the agency’s investigation into SCL Security, as it was the prime provider responsible for the funding.
It is not clear whether the agency has now agreed to pass the repayment on to SCL Security, or whether it is seeking similar clawback from both providers.
The ESFA refused to comment on the investigation.
Christine Ricketts, principal of Brooklands College, said she could not comment on the clawback or SCL Security investigation but told FE Week her college “continues as a going concern” and has benefited from a “recent increase in recruitment and improved financial performance”.
The college is “well advanced in discussions to resolve outstanding issues” and expects to publish its much-delayed accounts for 2019 and 2020 before the end of this financial year, Ricketts added.
Merritt, who took a director’s loan of over £8 million from SCL Security, “decided he had no alternative” but to file for bankruptcy, which was granted in July 2021, the liquidators’ statement states.
His main asset was a property owned jointly between him and SCL Security’s other director, Kym Rowe. The property is currently on the market and any proposal for repayment would be funded by way of the sales proceeds.
The joint liquidators, Phil Deyes and Anthony Milnes from Leonard Curtis Business Rescue and Recovery, have submitted a claim in the bankruptcy to recoup the overdrawn loan account.
Their report states that although there are currently no funds available to “enable a distribution” to unsecured creditors, it is “considered likely that there will be sufficient funds available to enable a distribution to creditors in part from asset realisations in the future”.
However, the liquidators have “not formally agreed” to any claim as yet from the ESFA. They have “spent a considerable amount of time” reviewing the agency’s claim in order to understand the impact on their investigation “both in terms of the liquidators’ statutory duties and assessment if these could lead to any other realisations”.
Over the past year the liquidators have also received claims from “a college” and another “agency” identified in the ESFA investigation, according to the report.
“Again, time has been spent reviewing the supporting documentation provided in respect of these claims together with the information brought to the joint liquidators attention as a result of the ESFA investigation,” it said.
“Due to the quantum and nature of the claims received the joint liquidators instructed lawyers from Andrew Jackson solicitors to provide legal advice in relation to these claims.”
The liquidators warn that if these investigations determine there are further monetary claims against SCL Security’s directors, it is “uncertain whether these would ultimately affect the overall recovery from this source”.
Merritt did not respond to requests for comment.