National Union of British Sign Language Interpreters

Pearl Linguistics insolvency document confirms framework agreements are unworkable

Company History

The Company was incorporated on 22 January 2004 and was seen as one of the most successful language businesses in the UK, holding some of the largest NHS and Local Authority contracts.

The Company provided various language services to the UK public sector organizations including the NHS and various local authorities with clients such as Central Manchester Hospitals, Imperial College Hospitals and Leeds Teaching Hospitals. The Company also had a respectable database of private sector customers such as Mercedes Benz, Starbucks and Apple.

The business won 8 national excellence awards for customer service and technology with the last one being presented a day before the decision to place the Company into liquidation.

The Company started to trade in 2004 and was able to achieve steady growth ever since. The Company achieved a turnover of 26.3m in the financial year ending 31 March 2016. Although profits were always small due to the nature of the industry and the cost pressures from Government clients, the Company was still profitable until the end of the last financial year.

Going into 2016-2017 it was expected that this would be a successful year for the Company as brand new contracts had been signed and a factoring agreement with HSBC Invoice Finance was supposed to ensure a smooth cash flow, despite the Company’s low margins.

Based on these new contracts and the factoring facility, the management team launched a Finance department rebranding, completely renewing finance staff training, communication methods, KPIs and supplier payment terms. The new Pearl Finance department was relaunched in March 2016 and was overseen by the Company’s Finance Director.
As a result of making these changes to the Finance department, the management team believed that the Company had the appropriate controls and measures in place to better serve clients and suppliers.

Reasons for Insolvency

We believe there are two reasons for the insolvency:

1. The Company experienced ever increasing cost cutting demands from public sector customers while asking more for their money in terms of technology, management and quality. In the last few years, the rate the clients were prepared to pay reduced dramatically. The Company won some tenders but lost a lot more because it was it could not compete on price with competitors. It became more frequent that new suppliers were offering rates lower than the Company within its contract areas. It was a case that, either the Company was going to have to follow this route as well or not win any business at all. In addition, the Company entered into Framework agreements which forced it to offer low rates without the supplier really knowing whose business they would eventually get.

2. Despite the introduction of the new the Pearl Finance department in March 2016, the Company started to experience cash flow issues due to the decreasing rates NHS and local authority customers paid. The issue for the Company was that these cash flow issues were exacerbated by the Finance department not communicating the problems to the management team. It is alleged that various methods were used to prevent issues such as cash flow and creditor liabilities from being notified to the management team which, if they had been, could possibly have been resolved.
The management team, up until 21st December 2016, were made to believe that the Company was profitable and was up to date with its creditor payments.