torsdag 24 oktober 2013 | business
Congrex Holding has defaulted
Congrex Holding, Congrex parent company in Holland, has defaulted according to a report. From the appointed curator, Mr J.R.Berkenbosch, which says: ”Temporary suspension of payment has been Granted to Congrex Holding Bv in Amsterdam (Holland) on 02-10-2013. The insolvency number of this case is S.13/13/53. The (main) activity of Congrex Holding Bv is financial service activities, except insurance and pension funding. No reports are available yet.”
Increasingly rumours say that all the companies within the Congrex parent and subsidiary companies face the prospect of bankruptcy. The scale of the overall bankruptcy, according sources close to Meetings International, could be significant with losses of between €10-15 million.
The big losers will be the association clients who have deposited significant congress capital in advance of their events, and equally the congress centers, hotels and other suppliers holding out for unpaid services and advanced bookings. Just in Uppsala, Sweden, such suppliers have lost over €1,2 million in the three medical weeks in September.
There are also a number of medical associations that have lost their entire congressional cash, in some cases with pre-planned congresses that would only be carried out a few days after Congrex in Sweden was declared bankrupt by the owners. This includes the Urologist meeting in Linköping.
According to reliable sources, the company has been in decline for some time. The problems began with a series of acquisitions between 2005 and 2007. PCO business provides access to large cash flows in the form of advances from delegates and sponsors. Many associations have also historically allowed PCO`s to hold these revenues in their own bank and let the surplus from previous congresses remain in the PCO`s account.
And here`s the crazy thing! This made it possible for Congrex to acquire companies for close to €16 million using client funds to do so, with very limited additional external funding. The acquisitions were handled primarily by Donald Hellstedt, one of Congrex owners and Layth Bunni, the then CEO, both with very little prior experience in corporate acquisitions.
After a few smaller takeovers in 2005 (Congrex Gothenburg, Concorde Services and Congrex Venezuela), they purchased the Swedish Booking Agency SKD in 2006 which, at that stage had sales of close to €31 millions and earning €0,3 million million, for €3,8 million. This particular acquisition was based on over optimistic forecasts and has proved to be far too expensive. Only a portion of the acquisitions was financed through bank loans. Two years later several key employees and customers either left the business or withdrew their custom from SKD. Shortly thereafter came the financial crisis that hit the booking agency business hard. By this stage, SKD`s activities – by now integrated into the operations of Congrex Sweden - had halved in comparison to those of the company at the point of acquisition.
The acquisition of AGS in 2007 for €1 million was undertaken, according to our sources, with no proper due diligence from the management of Congrex in Sweden. No external funding was required. It soon became clear that much of this business was a mess. The business had to be liquidated, five or six offices had to be closed down including in Washington, and the only thing left was the Brussels office which became Congrex Belgium. The liquidation and decommissioning costs of AGS became as much as the purchase in 2007.
Congrex also acquired AKM AG 2007, an international conference company based in Basel, Switzerland, and its subsidiaries AKM Travel AG, an IATA licensed travel agency based in Basel, and AKM Congress Service GmbH, based in Weil in Germany. Once again, no external funding was taken. AKM became Congrex Switzerland and AKM Travel became Congrex Travel. Initially, this was viewed as a great opportunity and also boosted the company because Congrex Group handed over all hotel reservations for major conventions with over 500 participants of all Congrex offices worldwide. But the acquisition activities of Congrex Sweden without external funding returned to haunt the company after the financial crisis of 2008 and its demise was all too apparent to the management as early as 2011.
In 2010 the whole Congrex Group (excluding the parent holding company) a new accounting principle, `revenue recognition`, which in the current year's income statement expected total turnover and profit from the thousands of hours worked with future projects. This means that you "borrowed" sales figures from the upcoming project to showcase a good result this year. Then, when not all the business transpired to take place, or failed to reach budget, then so increasing discrepancies in future stated earnings became evident. Several people in senior positions from within Congrex Sweden and other Congrex subsidiary holdings elsewhere in Europe and beyond voiced their concerns over the policy of `revenue recognition` in the accounts to the senior management of Congrex Holding. But instead of rectifying the shortfall in accounts resulting from forward recognition of revenue, those people voicing concerns from within the subsidiaries either voluntarily left the company or were simply kicked out.
In 2011 Congrex endured a significant foreign exchange currency loss having failed to hedge its currency in Switzerland. As much or even more than € 2.2 million was lost, but bankruptcy of Congrex Sweden came much later than many insiders predicted.
Also in 2011 Congrex received a takeover bid of € 22 million that the owners turned down. Maybe this bid would not have survived due diligence, but should the bid have been rejected out of hand?
Although AKM was a good deal and some believed that this part could be saved from within the bankrupcy of Congrex in Sweden, the administrator has stated that he can only find buyers for smaller parts of the business and he has chosen to conclude the bankruptcy as early as tomorrow, Friday October 25, 2013. Remaining employees will go home from their jobs for good. It will take months before all the documents are reviewed and bankruptcy can be fully terminated.
Meetings International has repeatedly asked Donald Hellstedt for comment to get his views on what it was that finally got him to give up and file for bankruptcy, but he has declined to comment.