How to be dead unpopular: Danielle Baillieu and Jason Nisse look at the problems of franchisees who put their faith in Howard Hodgson (CORRECTED)

CORRECTION (PUBLISHED 29 MARCH 1993) APPENDED TO THIS ARTICLE

WITH his collar-length blonde hair, permanent tan and matey manner, Howard Hodgson made an incongruous funeral director. But the City of the go-go 1980s took to him and he was able to build up the UK's second- largest funeral directors, PFG Hodgson Kenyon.

It was a pounds 100m-a-year business when Hodgson left the board in 1990 - ostensibly to write books. Only one has appeared so far, a sort of autobiography called How To Become Dead Rich, but soon Hodgson was back in business.

He had two ventures. The first was a management consultancy, Hodgson & Partners, where he worked with another creature of the 1980s, John Gunn, the former chairman of British & Commonwealth Holdings, which collapsed in 1990 owing over pounds 1bn. It shut up shop last November.

The other was Hodgson Securities. It has an insurance arm, Hodgson Integrity, which has ceased trading, as well as Hodgson Training and Hodgson Systems, both in liquidation.

But its main business was Prontac. This involved franchisees taking in the accounts of sole traders and small businesses, and producing them in a form acceptable for statutory filing through Prontac's computer system.

A week ago Hodgson Securities went into receivership. It owed pounds 750,000, two-thirds of which is owed to Hodgson himself. Earlier this week, following an aborted management buyout, Hodgson bought Prontac from the receivers for pounds 10,000 and gave the business to a group of franchisees, led by Gwyn Williams.

Prontac was launched in 1991 amid much publicity with Hodgson lunching his old City contacts and telling them what a great venture it was. The adverts proclaimed Prontac as 'the best new business opportunity'. They featured pictures of Hodgson and described how he had built his funeral business from one branch and pounds 14,000 of capital in 1975 to a value of pounds 90m by 1990. They boasted how he had retired, aged 40, a multi-millionaire. For a Prontac franchisee, it said 'first year's profits can be pounds 25,000- pounds 30,000'. All this was for an initial outlay of 'only pounds 12,750 plus VAT'.

Franchisees, such as Richard Hunt of Newbury, were tempted by the involvement of Hodgson. Mr Hunt says he would not have taken the franchise on otherwise. Most of those who bought Prontac found problems from day one. It became obvious that although the concept was good, the idea was poorly researched.

Robert Knight, a franchisee in the South-west, ceased trading after three months because, as he says: 'I couldn't afford to carry on. The costs of getting a customer exceeded its value. Prontac was all hype and no substance.' He has losses of pounds 25,000.

Franchisees were led to believe by cash-flow projections that they would have at least 66 clients after a year's trading. No franchisee has achieved this. After several months of trading franchisees were lucky to have on average three clients; some had none. The 85 franchisees involved when the business closed had only 300 clients between them. Most franchisees face losses of at least pounds 20,000 each.

When franchisees did manage to get clients, Prontac was unable to give them crucial back-up. Brian Veal, a Bristol franchisee, has been trading for a year and has only four clients. He says: 'The franchise has been grossly mismanaged. The accounts they produced were invariably wrong or late.'

John Finn, the former Prontac Master Agent who sold many franchises, admits: 'The accounts were usually wrong or late. We were on a learning curve.'

Hodgson was made aware of the problems at Easter last year, when he was sent a post-graduate research report conducted by university student Andrew Knight, son of a franchisee. Mr Knight sent questionnaires to the 35 franchisees on Prontac at that time. He concluded that the system did not meet the minimum requirements of a franchise operation and the Prontac formula, despite its ability in- theory to be accepted by a wide cross- section of the business environment, simply did not work in practice.

Mr Knight was warned against publication of his findings to any third parties, including the franchisees who had contributed to the report, by Hodgson's solicitors, Addleshaw Sons & Latham.

Written complaints to Hodgson and fellow director David Meakin continued through the rest of last year and into 1993 from angry franchisees, consultants and solicitors attempting to obtain compensation for franchisees and to stop Prontac from advertising for more franchisees.

The warning signs were ignored. Prontac continued to advertise for franchisees at an even higher fee of pounds 16,950 plus VAT. By the end of October, though, Hodgson decided to change advertising policy and removed his photograph and all mention of himself from the Prontac adverts. Asked why, he said: 'In August 1992 Prontac was having financial problems and I decided to resign as non-executive director. I was asked by the management to say nothing to franchisees because they thought it would cause panic. I admit I carried on acting as a shadow director. However, I put more money into Prontac as a debenture holder because I believed in the concept.'

But at a franchisees' meeting in Birmingham last November, Hodgson said that he was becoming more involved. No mention was made of his departure from the board.

That is not surprising. He has just lent pounds 350,000 to the company and Deborah Sullivan, who was head of the accounts bureau at Prontac from September, says that although Hodgson resigned in October, he was re-appointed to the board six weeks later. He turned up at Prontac's headquarters in Manchester at least twice a week and signed all cheques. 'Howard Hodgson was completely in control,' says Ms Sullivan.

In November there was another significant change. Franchisees say they were led to believe that the computer services, and the laptop computers used to input data, were part of their franchise fee. However, Graham Knight of P&P Corporate Systems Leasing Company, says franchisees' computer equipment belongs to P&P. He says that from last November all computer equipment provided to franchisees was put on a three-year rental agreement with Prontac. He has repossessed equipment from the company's bureau.

Hodgson denies all knowledge of the computers but stresses: 'I back the franchisees on this one but I can't speak for what the executive director David Meakin has done. Speak to him.' Mr Meakin was repeatedly unavailable for comment.

It appears that between Easter and October last year, Hodgson and Mr Meakin knew the franchise was experiencing problems and yet continued to recruit another 45 franchisees.

One new recruit is Ernie Marland, who started trading in January this year about the time Hodgson put another pounds 150,000 into the company. He says he was not told of the difficulties. 'I was given no hint of Prontac's problems by any of the directors or Prontac staff'.

Franchisees estimate Prontac has made about pounds 1.6m from franchise fees to date. It is unclear what has happened to the money. Hodgson says it was spent on training and setting up the franchisees. Ms Sullivan says a great deal went on office rental, company cars - including one for Mr Meakin's wife - and high salaries. The franchisees are not satisfied. They are taking legal advice and want a full investigation.

Hodgson says he is pounds 600,000 out of pocket even before the pounds 10,000 he paid to give the company away. But if the franchisees have their way, he is set to lose a great deal more.

CORRECTION

Prontac

John Finn has asked us to point out that the article about Prontac on 18 March incorrectly described him as selling many franchises. He says he did not sell franchises, but merely introduced clients to franchisees.

(Photographs omitted)