Cobra Beer, owner of the lager brand marketed as ‘less fizzy’ and thus somehow more suitable for curries, went bust at the end of May. As Cobra struggled to survive around 100 staff lost their jobs. Cobra owed unsecured creditors a staggering £75 million. The brewer Wells & Young’s, which manufactured the ‘Indian’ beer not in India but Bedford, was owed many millions of pounds.
So, given some expectation of natural justice, we would expect Cobra’s owners and investors to lose control of the business they failed to run properly; the business to be sold to new owners who might have the skills and strategy to make it a success; the trade creditors who made, distributed and promoted the beer to get whatever value remained to recompense them for their work. Life is not that fair, and certainly not in the world of the ‘prepack administration’.
Cobra Beer was controlled, until the end of May, by Lord Karan Bilimoria. Bilimoria was nominated for his CBE in the same 2004 Queen’s Birthday Honours List as the infamous Sir Fred Goodwin, who ran Royal Bank of Scotland into the ground. Subsequently upgraded, the now Lord Bilimoria seems as adept as Goodwin at ensuring his own personal enrichment at the expense of his employees and creditors. The phoenix Company that has risen from the ashes of Cobra with indecent haste is 49.9% owned by a certain Karan Bilimoria, with the remainder purchased by Molson Coors. Meanwhile, the people who ran the adverts or bottled the beer are left without payment, as the sacked employees are left without jobs.
Lord Karan Bilimoria always seemed to run Cobra Beer as a personal promotional vehicle. Bilimoria appeared to spend more time on speaking engagements than running the business, and the judgement and emotional security of any person willing to become Chancellor of Thames Valley ‘University’ must surely be questionable. When cantankerous examined the Cobra balance sheet, a few years ago now, there wasn’t enough surplus cash to pay a telephone bill. The last, truly last, set of accounts showed that the Company lost a staggering £15.9 million on a turnover of £34.1 million; growth isn’t hard to achieve if products are sold for half the amount that needs to be charged to break even, never mind make a profit. That a company voluntary arrangement (CVA) was vetoed by the credit insurer of Wells & Young’s, which actually did the work of brewing the beer under licence, indicates that legal action may be likely. It is hard, at first glance, to see how Cobra was not trading while insolvent or how its auditors, PWC, managed to repeatedly give it clean bills of health. As an aside, cantankerous could never understand the point of attempting to turn Cobra into a global brand when the US rights were owned by a rival.
While the discussion of moral hazard is often restricted to economic principles and banks, and while everything should be done to salvage businesses, what happened with Cobra Beer can’t be right. Yes, trading partners should not have been so foolish as to allow themselves to become so exposed to a company with such woeful financial performance, but when businesses are restructured it cannot be appropriate to reward incompetence at the expense of suppliers and employees. What was Cranfield School of Management thinking when it awarded Bilimoria its 2008 Entrepreneur Alumnus of the Year award? And cantankerous really can’t understand why Molson Coors would want a businessman with the record of Bilimoria to own 49.9%, and be Chairman, of a business in which it has invested £14 million.
Lord Karan Bilimoria wins the June 2009 Waster of the Month award for wasting:
- the time of his speaking engagement audiences lecturing them on entrepreurship and his ‘success’;
- the money of his suppliers;
- the talents and efforts of his former employees;
- and, lastly, a peerage.