The collapse of electronics giant Comet has sent ripples through the business community that extend well beyond the retail sector.

The collapse of electronics giant Comet has sent ripples through the business community that extend well beyond the retail sector.

As more and more details of the context behind Comet’s demise come to light, the widespread implications are being felt, particularly in the private equity and venture capital industries, and even at the highest levels of government.

This week, Vince Cable launched an inquiry into OpCapita’s purchase of Comet and the events that led to its administration. Little has been revealed about what exactly the investigation will be examining, but what should we expect it to achieve?

With Comet going out of business right in the middle of the Christmas shopping period, taxpayers facing a potential bill of £49 million and almost 7,000 employees losing their jobs, the public outcry surrounding the administration is understandable.

Comet’s insolvency has been hailed as the most high profile retail collapse since Woolworths went into administration in 2008. As a result, the Department for Business Innovation and Skills has found itself under a huge amount of pressure, both publically and politically, to address the queries surrounding the purchase and subsequent failure of the electricals giant.

Cable’s investigation, carried out by the Insolvency Service, will no doubt help to relieve this immediate pressure. In the longer term, however, the investigation will likely have wider ramifications for the insolvency industry as a whole.

A spokesperson for the Department for Business revealed earlier in the week that it is “already reviewing the overall insolvency regulatory framework, to see whether it remains fit for purpose in today’s environment”, and this investigation will no doubt spark further debate into the how insolvency practices are administered in the UK.

While a review of these regulations is a positive move from the Government, what must not be forgotten in the Comet example specifically, is context.

The background to Comet’s demise is complex. It’s true that OpCapita took on a high level of risk when it bought Comet from former owner Kesa last year. However by that point the business was already on its knees having reported a loss of £8.9 million in June 2011.

The decision to sell is never an easy one, and numerous other options would have been explored before the deal was reached. With this in mind, had OpCapita not intervened, the likelihood is that Comet would have collapsed 12 months earlier.

Private investment companies such as OpCapita have huge legal teams working with them in every takeover or purchase they take part in. While some of the points of the Comet deal seem somewhat dubious, the purchase price of £2 and the £50million dowry OpCapita received, the actual legality of the transaction is not in question.

Taking that into account, and adding the fact that the Department for Business is prohibited by law from publishing the findings of the enquiry, at this stage it is hard to imagine what the Business Secretary’s investigation will unearth, expect perhaps extra costs for the tax payer.

  • Dan Coen, Director, Zolfo Cooper