As customers of Avro Energy forked out for their gas and electricity direct debits, they had no idea that they were only postponing the death of a badly run business whose collapse would end up costing bill payers £700m.
Despite having no apparent background in the complex energy industry, Avro’s founder, Jake Brown, a former non-league footballer, set up the company with a family loan in 2016. Within a few years of the company’s entry into the market, Avro had amassed half a million customers while enriching Brown and his family along the way.
Between 2019 and 2020, those customers – who paid for their energy in advance – funded £4.25m in “management charges” funnelled to Sentido Marketing, owned and controlled by Brown, now 28, and his father, Philip, 58, the company’s other director.
During the same period, Avro, based in Hinckley in Leicestershire, lent £700,000 to its owner-directors, the same father-and-son team. It also lent another £830,000 to Berkeley Swiss Ltd, a property development company whose directors and majority owners should be obvious by now: Jake and Philip Brown.
In September 2021, having racked up losses of £55m in seven years, Avro collapsed into administration, owing £90m to its 580,000 customers.
Those customers – and the bulk of their credit balances – were taken on by healthier rival Octopus Energy. But the cost of Avro’s failure, which will be borne ultimately by every bill payer in the country, has been estimated by the energy regulator Ofgem at £700m.
It is Ofgem that should take much of the blame for the fiasco, according to Tuesday’s report by 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 fostering competition for the big six suppliers such as British Gas, SSE and EDF Energy.
One of the new challengers was Avro, which was launched by Brown shortly after he finished an undergraduate law degree.
Aged just 22, neither he nor his father had ever done anything close to running a major energy supplier. Yet that proved no barrier to entry.
Asked at a select committee hearing last year whether he had taken any kind of test to show he was a “fit and proper” person to shoulder such responsibility, Jake Brown thought hard. “I don’t believe so … unless Ofgem did a background thing on me. I don’t remember ever filling anything in specifically,” he said.
Brown apologised during the committee session for his role in what, according to the report and industry sources, was a litany of failure.
Accounting records were not kept, to the extent that – according to one person close to the situation – the company had thousands of customers of whom it was unaware and from whom it was not collecting any money. Meanwhile, directors “consistently enriched themselves” through loans and unjustifiably high salaries, funded with customers’ prepayments.
Of the loans taken by the directors, the MPs’ report said, it was “unclear” how much was repaid before Avro went into 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 did not implement a hedging strategy to guard against the high gas prices that set in last year. It was “negligent” in managing risk, the report found.
Ultimately, bill payers were left “footing the cost of their failure”.
MPs declared themselves “disappointed” by an admission from the former Ofgem chief executive Dermot Nolan that the regulator had been oblivious to goings-on at Avro, despite Citizens Advice voicing concerns about the company to the regulator 10 times.
The committee urged the government to consider giving the “negligent” regulator greater powers to bring enforcement action for unfit conduct by energy company directors. It also called on Avro’s administrators to ask the Insolvency Service to consider bringing action against former directors and to provide an update on what action could be taken to recover customers’ money.
Requests for comment sent to Avro email addresses for Jake Brown and Justine Brown, his mother and Avro’s former head of HR, were not returned.
