Citing poor financial management, inadequate financial control and the collapse of the second-user market as contributory causes, John Alexander of Peat Marwick McLintock has had to liquidate Rainbow Computer Plc. This computer broking company zwas operating from Sawbridgeworth, Hertfordshire until it was crippled by the loss of key staff, the breakdown of the company’s own computing system, a downturn in sales and the withdrawal of a dealership agreement. Established in January 1986 Rainbow traded profitably for the first two years of its life. As a second-use computer business it made a net profit of UKP25,000 in the its first year of trading and saw turnover rise by UKP500,000 to UKP1.3m at the end of its second year, following the appointment of authorised dealers for Toshiba and IBM personal computer products. Circumstances changed in the autumn of 1988. A senior computer broker left the company leaving the broker business to go down, making UKP100,000 in losses. The directors immediately made efforts to shore up the company. They injected UKP50,000 into Rainbow by selling its freehold property and leasing it back. Despite paying off the bank overdraft, however, the company has substantial creditors. The problems had been compounded by the forming of a subsidiary, Rainbold Services, in March which purchased a scrap computer business from Raybould Computer Services for UKP8,500 with a guaranteed income for the previous owner. The projected turnover of the acquired company could not be met and Rainbold has also been liquidated. As a result creditors of both companies including IBM, Toshiba and P&P are unlikely ever to see the part of the UKP460,000 overall liabilities that they are owed. Consequently, Alexander is urging dealerships to be more vigilant: they should stop giving credit to companies that are not creditworthy – in this context they should be aware that in the current economic climate salespeople are too keen to make a sale and do not check on credit control. Dealerships should also insist that their goods remain on the customer’s premises clearly identified until paid for.
