MPs tell boss of collapsed energy firm: ‘You should never have been allowed to start one’
GOVERNMENT ministers have been querying the “unusual” set up and the financial dealings of a failed energy supplier based in Hinckley that went bust in 2021.
Avro Energy was one of many small energy companies that folded last year amid a national spike in gas prices, leaving its 580,000 customers owed some £90 million.
The Hinckley firm also owed £56 million to industry regulator Ofgem when it ceased trading, with its clients taken on by Octopus Energy.
The company’s chief executive, Jake Brown, spoke to MPs on the Business Energy and Industrial Strategy (BEIS) committee, who were quizzing several energy industry bosses about why the businesses had failed.
The MPs were curious to learn that Avro was managed by six people, including Mr Brown and his father, Philip, all of whom worked for a separate company, Sentido Marketing, which was also owned by the father and son.
Sentido charged a variable fee to Avro for its services, which was £250,000 a month at one stage, which committee chair Darren Jones MP said was “a lot of money”.
Mr Brown set up the company in 2014 while finishing his degree in Law, investing some £250,000 of family money to launch the business.
When asked why the company had collapsed, he said that at the time of administration the firm was itself owed a lot of money, including £45 million from customers and £47 million of “accrued income”, from energy used by customers that they had not yet paid for.
He said that the company had previously performed well, with a £30 million profit in 2020 and several offers from other companies to buy Avro, but rising gas prices in summer 2021 had impacted the business.
But the panel of MPs challenged him on the figures, as from 2017 to 2021 the company had significant operating losses of £53.8 million.
Mr Jones MP said: “From our perspective, we’re seeing a loss-making business of around £54 million a year, a founder that’s injected £250,000 to start up the business.
“Trading off of customer balances to grow the business and then paying a management company £250,000 a month to run the business.
“We look at lots of businesses, that’s very unusual.”
Asked if he regretted what had happened, Mr Brown said: “Of course I feel a lot of regret. What happened to Avro was never anyone’s intention. That was never in the thinking at all.”
The MPs were also concerned about the lack of instruments in place to protect Avro’s energy purchases, which the administrators said “left the company exposed”.
The panel asked the former chief executive about who was advising him on financial matters during this time and what their experience was.
Mr Brown said he had discussions with several “trading partners” who had traded in gas and power for several years.
The MPs also had questions about payments made by Avro Energy to another firm run by the father and son.
From 2018 to 19, when Avro made an operating loss of £28 million, the firm loaned £830,000 to Berkeley Swiss, a construction firm owned by the duo, while Jake Brown also took £164,000 in personal loans from Avro.
The former energy boss said that the money for Berkeley Swiss was to purchase an old commercial building, which they hoped to turn into a headquarters for the Avro, but the project did not come about and the money was returned.
In 2019, more than £530,000 was loaned by Sentido to the father and son and in 2020, they were given more than £970,000 in loans from the company.
The panel wanted to know what the personal loans were for, with Mr Brown replying that “I don’t think it’s necessary for me to comment on that in a public forum which is designated to energy pricing.”
Mr Jones MP put it to the former chief executive: “Ultimately here you have an energy company that’s loss making, you’ve used customers’ money to pay your management consultancy firm, which has given that money to you as a personal loan.
“So you have ended up with customers’ money and you’re not willing to tell this committee what you’ve spent it on.”
Mr Brown said in response that “I have not touched customers’ money” and said that all the loans were repaid. The panel also mentioned that in June 2021, Avro was fined £30,000 by Ofgem for repeatedly failing to provide accurate and timely responses to requests for information.
Mr Brown said that Avro had paid the fine and that this was not an issue unique to them, as several energy companies have been fined over the years by the regulator.
The collapse of Avro will cost consumers up to £700 million, the committee said.
Mr Jones MP told the company boss: “You pretty much personify the reason we need to change the regulations. In my view, you should never have been allowed to start an energy company.”
Asked if he would like to apologise to his customers, Mr Brown said: “I want to take the opportunity to apologise to our customers and the whole of energy customers that are now seeing the costs of the failures.”
You can view Mr Brown’s appearance before the BEIS committee on the parliamentlive.tv website.
You pretty much personify the reason we need to change the regulations. What chairman of Parliamentary committee told former Avro Energy boss