Troubled public sector cloud provider hit with winding up order

Public sector-focused sovereign cloud provider UKCloud has been placed into liquidation more than a year after its accounts revealed that the firm was in need of a £30m funding injection to continue trading.

Winding-up orders for UKCloud and its parent company, Virtual Infrastructure Group, were issued on Tuesday 25 October 2022, and Gareth Jonathan Allen has been appointed official receiver by the court to oversee the liquidation of both parties.

According to sources who spoke to Computer Weekly on condition of anonymity, the Cabinet Office is understood to have started briefing the firm’s customers at the start of this month to begin transitioning to new suppliers in anticipation of the company collapsing within three weeks.

Allen will be assisted by two representatives from Ernst & Young, who were appointed by the court to take on the role of special managers who will be tasked with maintaining the operations of each company as the liquidation process plays out.

“The Official Receiver will wind down the affairs of Virtual Infrastructure Group Limited and UKCloud Limited in an orderly manner in accordance with his statutory duties,” said the Insolvency Service in a statement.

“The Official Receiver also has a duty to investigate the cause of the companies’ insolvency and the conduct of current and former directors.”

UKCloud’s clients and suppliers are being advised to contact Ernst & Young to discuss the transition plans for their contracts, and the liquidators have confirmed that the possibility of the company being sold on is still being assessed as a viable path forward.  

Meanwhile, data supplied to Computer Weekly by public sector analyst house Tussell shows that UKCloud secured 11 public sector contracts in the 24 months to October 2022 totalling £1,054, 858. The largest was a two-year deal valued at £259,000, involving the provision of disaster recovery services to Gloucestershire County Council. It started in April 2021 and is due to end in March 2023.

The most recent contract win secured by the company is valued at £103,000 and is with the Ministry of Defence. That contract started on 1 October 2022, and is due to run for 12 months.

Meanwhile, the employees of UKCloud and Virtual Infrastructure Group who were dismissed as a result of the winding-up order are being advised to contact the Insolvency Service for details on how to claim any wages, redundancy or holiday pay they are owed by either company. 

News of the firms’ liquidation comes nearly a year after Computer Weekly first revealed that the Cabinet Office had been advising UKCloud customers to find alternative suppliers after growing concerned about the state of its finances.

This was in the wake of a Companies House filing by UKCloud in September 2021 that confirmed the company had appointed advisers in September 2020 to secure new investors after finding itself in a £30m funding hole.

Sources told Computer Weekly in October 2021 that government departments and suppliers were being instructed to migrate from UKCloud for business continuity reasons because the company could cease trading in January 2022.

Instead, that month saw the firm issue a statement that its future was assured following its acquisition by an investment firm headed by UKCloud chairman Jeff Thomas.

The terms of that acquisition, which was also backed by existing UKCloud investors Digital Alpha Advisors and BGF, were not disclosed – prompting questions about how much of the £30m funding shortfall the deal would have covered.

Concerns within Whitehall about the financial security of the firm began to emerge again in recent months, Computer Weekly understands, after UKCloud was late filing its most recent set of financial accounts, which were due for publication in June 2022.

The company was due to announce a partnership with tech giant HPE in July 2022 that would see the two firms team up to “accelerate the adoption of sovereign cloud services” within the UK public sector, but the announcement was postponed.

In response to a question from Computer Weekly about whether the two firms had any plans to reschedule the event, a press representative for HPE confirmed on 18 October that “this is at a standstill right now”.

Until 2017, UKCloud was the third-biggest provider of cloud services to the public sector, based on the government’s own G-Cloud spending data, but the opening of UK datacentres by hyperscale cloud giants Amazon and Microsoft in 2016 hit the company hard.

The firm had seen the amount of spend it secured through G-Cloud rise quarter by quarter until it hit a peak of £8.1m during the first quarter of 2016/17, before falling to £552,000 during the second quarter of 2022/23.

UKCloud’s 2017 financial report showed that the firm posted a profit of £4.4m during its G-Cloud peak, with company accounts describing an organisation with confidence that it was well placed to continue picking up public sector clients and contracts with the same zeal as it had in previous years.

But the following year, UKCloud reported a downturn in profit, revenue and customer usage, with its 2018 accounts attributing this to increased competition from the US cloud giants.

During the 2018/19 financial year, the firm posted a loss of £2.5m before falling deeper into the red to the tune of £17.9m during the 12 months to March 2020, according to its 2019/20 accounts, which also confirmed that it needed a £30m investment to continue trading.