David Unwin and Nicholas Ibbotson have become the latest directors of Shropshire construction company Wrekin Construction Company Limited to be banned as directors for ten and seven years respectively, after inflating the companys accounts with an 11million ruby called The Gem of Tanzania, which was eventually sold for 8,000.
The disqualifications, which come after the 2011 disqualification of a third director Peter Greenwood for the same claim, follow investigations by the Insolvency Service.
Mr Unwin, 65, of Widnes, Cheshire, signed a ten-year disqualification undertaking, which started on 12 November 2013, whilst Mr Ibbotson, 56, of Sutton Coldfield, West Midlands, signed a seven-year disqualification undertaking which started on 14 November 2013. Mr Greenwood, 62, of Telford, Shropshire, had earlier signed a nine year disqualification undertaking, which started on 9 June 2011.
The undertakings prevent the three directors from being involved directly or indirectly in the promotion, formation or management of a company for the duration of their bans.
Wrekin Construction Company Limited (Wrekin), set up in 1960, was a large civil engineering company based in Shropshire. By 31 March 2007 its annual turnover was more than 100million, but it had incurred trading losses and had a deficit on its accounts of 7.6million.
The investigations found that in June 2007 businessman Mr Unwin bought Wrekin from its then owners and in December 2007 he caused another of his companies, Tamar Group Ltd (Tamar), to transfer a ruby gemstone known as The Gem of Tanzania to Wrekin in return for shares.
The gem, which was uncut and weighed approximately 2kg, had been bought by Mr Unwin in 2006 and included as an asset in Tamars accounts at that time, at a value of 300,000. However, when the gem was transferred to Wrekins accounts in December 2007 its value was shown as 11million, based on a valuation supposedly carried out in Italy four months previously.
Wrekin collapsed into administration on 10 March 2009 with losses of more than 45million to creditors. When the administrators tried to sell the Gem they found that the document showing the 11million valuation was a forgery. Eventually the Gem was sold for 8,000.
The investigations by the Insolvency Service also found that in the weeks before the gem was transferred to Wrekin, Mr Unwin acknowledged in a meeting with the companys former auditors that there were uncertainties about the gems value.
Mr Ibbotson, Wrekins Finance Director, was aware of those uncertainties, but nevertheless told Wrekins new auditors that 11million was a genuine market value. Mr Ibbotson and Wrekins Managing Director Mr Greenwood approved Wrekins accounts to 31 December 2007, which included the gem as an asset worth 11million, without checking the reliability or authenticity of the Italian valuation report. In the course of the investigations, Mr Unwin gave differing explanations as to how he came by that valuation report.
By including the gem as an 11million asset in the accounts to 31 December 2007, Wrekin gave the impression that it had a financial surplus of 6.3million, whereas its true position was an insolvent one.
The Insolvency Services investigations further showed that in the months leading up to Wrekins collapse, at a time when Wrekin was under severe financial pressure and unable to pay its debts, Mr Unwin caused it to make substantial payments to two other companies controlled by him: Britannia Management Services Limited (BMS) and Equatrek (UK) Limited (Equatrek).
Between December 2008 and January 2009 Wrekin paid 768,177 to BMS supposedly with the intention that BMS would then pay the money to HM Revenue & Customs (HMRC) on Wrekins behalf. However, BMS did not pay HMRC and instead it transferred money to other group companies controlled by Mr Unwin to assist their cash flow. The investigations showed that all along the intention was for BMS not to pay HMRC straightaway but instead to pay Mr Unwins other companies.
In January 2009 Wrekin made net payments totalling 516,959 to Equatrek in connection with the sale and re-purchase of a substantial quantity of Wrekins machinery and equipment. Mr Unwin had caused Wrekin to sell these assets to Equatrek in November 2008 and then, one month later, to buy the same assets back again from Equatrek for 749,000 more than the sale price. Mr Unwin and Mr Greenwood had also caused a sham sales invoice to be created in Wrekins records in order to account for the substantial difference between the sale and purchase price of the assets.
Commenting on the disqualification, Pabitar Powar, Head of the Authorisations Team at the Insolvency Service, said:
The purchase of an uncut ruby gemstone by Wrekin was extraordinary and questionable. It is clear that the gemstone was included in the accounts to portray Wrekins financial position as a sound one, whereas its true position was the exact opposite.
Transferring funds to connected companies for no financial gain at a time when Wrekin was insolvent and under severe financial pressure clearly put the creditors at increased risk. Furthermore, a business deal which involved the creation of a sham invoice ought to have set alarm bells ringing for the directors and made them question the appropriateness of the whole deal in the first place.
Directors who recklessly present misleading information in this way damage the confidence of companies to do business with each other and undermine the business environment. These bans are a warning to other directors who might act recklessly and without due regard to the interests of creditors, that the Insolvency Service will investigate and remove them from the business environment.