AAs Avro Energy customers forked out their gas and electricity direct debits, they had no idea they were just postponing the death of a mismanaged company whose collapse would end up costing $700 million. pounds sterling to bill payers.
Despite having no apparent experience in the complex energy sector, Avro founder Jake Brown, a former non-league footballer, started the company with a family loan in 2016. As the company entered the market, Avro had amassed half a million customers while enriching Brown and his family along the way.
Between 2019 and 2020, these customers – who paid for their energy upfront – funded £4.25 million in “management fees” funneled to Sentido Marketing, owned and controlled by Brown, now 28. years, and his father, Philip, 58, the other company. director.
Over the same period, Avro, based in Hinckley in Leicestershire, loaned £700,000 to its owner-directors, the same father-son team. He also loaned a further £830,000 to Berkeley Swiss Ltd, a property development company whose directors and majority owners should by now be obvious: Jake and Philip Brown.
In September 2021, after racking up losses of £55m over seven years, Avro collapsed into administration, owing £90m to its 580,000 customers.
Those customers — and most of their credit balances — were taken over by Octopus Energy, a healthier rival. But the cost of Avro’s failure, which will ultimately be borne by all the country’s bill payers, has been estimated by energy regulator Ofgem at £700 million.
Ofgem is expected to be largely responsible for the fiasco, according to Tuesday’s report from MPs on the Business and Energy Select Committee.
A phalanx of companies flooded the market nearly a decade ago, responding to a deregulatory drive by the regulator to keep prices low by promoting competition for the big six suppliers such as British Gas, SSE and EDF Energy.
One of the new challengers was Avro, which Brown started shortly after completing an undergraduate law degree.
Aged just 22, neither he nor his father had ever done anything close to running a major energy supplier. Yet this did not prove to be a barrier to entry.
When asked at a select committee hearing last year if he had passed any test to show he was a “fit and proper” person to take on such responsibility, Jake Brown said reflexive. “I don’t think so…unless Ofgem did a background story on me. I don’t remember filling out anything specifically,” he said.
Brown apologized during the committee session for his role in what the report and industry sources said was a litany of failures.
Account books were not kept, as – according to a person familiar with the matter – the company had thousands of customers it did not know existed and from whom it received no money. Meanwhile, administrators “constantly enriched themselves” through unwarranted loans and salaries, funded by prepayments from clients.
Of the loans taken out by administrators, according to the MPs’ report, it was “unclear” how much was repaid before Avro entered administration. Accounts filed at Companies House show £381,000 was outstanding as of June 2020.
Like many of the 29 suppliers that have failed so far, Avro has not implemented a hedging strategy to hedge against the high gas prices that have set in over the past year. He was “negligent” in risk management, according to the report.
In the end, the bill payers had to “bear the cost of their failure”.
MPs said they were ‘disappointed’ by an admission by former Ofgem chief executive Dermot Nolan that the regulator had been unaware of events at Avro, despite Citizens Advice raising concerns about 10 times the company to the regulator.
The committee urged the government to consider giving the “negligent” regulator greater powers to prosecute misconduct by directors of energy companies. He also called on Avro’s directors to ask the insolvency department to consider taking action against the former directors and provide an update on what steps could be taken to recover customers’ money.
Requests for comment sent to Avro’s email addresses for Jake Brown and Justine Brown, his mother and former Avro human resources manager, were not returned.