Construction company Surgo collapsed owing £4.5m following a chain of events triggered by work for a charity which failed to pay bills, new documents show.

Administrators at FRP Advisory and Lucas Ross were appointed to the Newcastle business in March, leading to 46 redundancies and work coming to an abrupt halt on eight live sites. It has previously been reported how a payment dispute over the fitting of kitchens involving North East companies Roundel and Bellway ultimately led to its demise, with Bellway filing for a winding-up petition which led to the administration of the Newcastle Business Park firm.

Now, however, an administrators’ report details how Surgo’s financial woes began after working on a project for an unnamed charity which then didn’t have the resources to pay £1.4m it owed. The report detail how Surgo’s work for the charity, which was registered with the Charity Commission, saw it swiftly incur substantial costs.

Monthly applications for payments were met for eight months by the charity, but then stopped, and “it quickly became clear that the charity did not have funding in place to either settle the costs of the completed works or fund the remainder of the project”. Surgo started legal action to recover the money but the trustees of the charity were found to be personally liable for the unsettled debts – and they were were made bankrupt, so administrators don’t expect to recover any of the cash.

While absorbing around £1m in costs - which it tried to offset through cost saving strategies including redundancies – Surgo’s financial troubles were being compounded by a legal wrangle involving Roundel and Newcastle housebuilder Bellway. Surgo made an offer to Bellway to settle both outstanding disputes but the housebuilder didn’t accept the offer, instead filing a winding up petition against the company, the document says. The petition made it “extremely difficult” for Surgo to continue trading and the joint administrators were appointed soon after.

The report also includes estimated level of debts, with a deficiency of £3.7m owed to unsecured creditors and £232,000 owed to White Oak UK ltd for its Coronavirus Business Interruption Loan Scheme (CBILS) loan. HMRC is estimated to be owed £736,000. Meanwhile, 46 employees are owed just under £127,000 and a total of 256 companies, including many North East firms in Surgo’s supply chains, are owed around £4.48m.

The company had been working on eight live contracts with a book value of £1.5m, but no payments are likely to be made as the work went uncompleted.