Two directors of Lancashire-based Worldwide Sports Investments Limited have been disqualified from being directors for a combined 19 years for their roles in the company, which purported to offer investments in a golf course and hotel development in Portugal.
The disqualifications follow an investigation by the Official Receivers Public Interest Unit (North), part of the Insolvency Service.
Christopher Smullen, 44, a director of Worldwide Sports Investments Limited received a disqualification order made by the Court on 26 May 2015 barring him from promoting, managing or being a director of a limited company for 13 years, from 16 June.
The allegations put to and found proved by the Court in respect of Mr Smullens conduct were that:
1.Between 23 July 2010 and 04 February 2013 he caused Worldwide Sporting Investments Ltd (WSI) to mislead individuals into making payments to WSI, purportedly in respect of investment in a hotel and golf course. Furthermore, he caused the company to dissipate the funds, which meant no investor received any benefit. In particular:
WSI used advertising and promotion literature purporting that the project was endorsed by a prominent professional golfer which was untrue and for which it had no permission from the golfer or his agent
WSIs marketing literature stated that investors could expect fixed returns of 200%
WSI advertised that the investments were totally secure when in fact there was no security held by WSI
WSI indicated to potential investors that the investment opportunity was almost fully subscribed, when in fact only 11 of the 100 shares were apparently applied for, thereby pressurising them into making a swift decision
Analysis of the company bank account indicates that 11 individuals made payments to WSI totalling 275,000 and paid administration fees totalling 2,145
There is no evidence to suggest that investors received any benefit from their investment or that any investment was made on their behalf by WSI. There is no evidence to suggest that WSI had any agreement in place with the hotel and golf course to which its marketing literature referred
Bank statement analysis indicates that Mr Smullen caused investment monies to be used for his own personal expenses as well as those which might reasonably represent company expenditure
Mr Smullen caused investment monies totalling 194,914 to be used for gambling, resulting in net losses of 11,629 to WSI
1.Mr Smullen failed to maintain preserve or deliver up adequate accounting records, as he is required to, meaning that it has not been possible to:
Ascertain the full details of each of the investors who put money into WSI
Determine whether any payments were due to HMRC for PAYE/NIC
Determine the reason for cash withdrawals totalling 51,777 from the account between 20 May 2011 and 23 April 2012
Determine the reasons for sums paid from the bank account for items that do not appear to relate to legitimate business expenses, estimated to amount to at least 43,900
Determine whether amounts paid by cheque totalling 72,856 were for legitimate business expenses
Determine whether 11,434 paid to airlines and hotels via debit card was for legitimate company business
Fellow director, Sean Keating, 54, gave an undertaking to the Secretary of State for Business, Innovation and Skills (BIS) not to promote, manage, or be a director of a limited company for 6 years, from 17 September 2014. Mr Keating did not dispute that between 23 July 2010 and 02 August 2011 he abrogated his duties in relation to Worldwide Sports Investments Limited by:
facilitating the dissipation of investment funds totalling at least 94,091 and not overseeing the use of the bank account to which he was the sole signatory to ensure that monies removed from the account were for legitimate company expenditure and did not come from monies held on trust
signing at least 7 blank cheques and passing them over to another director without determining what those cheques would be used for.
The company was wound-up by the Court on 4 February 2013 owing creditors and shareholders at least 278,201, following a petition by an investor owed 25,195.
The investigation showed that:
The company was set up ostensibly to provide investment opportunities in a hotel and golf resort in Portugal
The number of investors was said to be limited to 100 shares at 25,000 each plus an administration fee of 195 per share
The scheme was promoted as being endorsed by a prominent professional golfer, but neither he nor his management company had given the rights to Worldwide Sports Investments to use his name or image
Individuals were comforted by the knowledge that the professional golfer endorsed the scheme and that his agent was on the board of directors
However, his agent was a member of the board to protect his client and was unaware that the scheme was actively being promoted and investments were being made, and resigned when he could not obtain information from the main director, Mr Smullen
The company indicated that it had purchased the hotel and golf resort for some 54,000,000, investments were therefore secure and investors would receive guaranteed returns of 200%
Other inducements to invest included suggestions that the scheme was almost completely subscribed and that other professional golfers were involved
Eleven individuals each made investments of 25,000 plus administration expenses of 195 to Worldwide Sports Investments Ltd
The investigation could not uncover any assets held by Worldwide Sports Investments Ltd. There did not appear to be any substance to the claim that the property had been acquired for 54,000,000
It further appeared that there was no agreement in place with the hotel and golf resort and that the image of same was used without consent
No investments were made by the company in respect of any of the 11 individuals, nor did they receive refunds of or any benefit from the sums invested
The funds were received into the company bank account and were dissipated over time. There were no monies available at the date of liquidation
Analysis of the company bank account suggested that some, if not most, of the expenditure therefrom was not connected to the purported business
No accounts or books and records were provided by the director in post at the date of the winding up order. It cannot therefore be determined whether some or any of the monies were used for business purposes. Nor can it be determined whether there are further creditors, eg HM Revenue and Customs, which would increase the deficit in this case. It has not been possible to determine if any of the monies expended were used to buy items which may have been realised for the benefit of creditors
Commenting on the disqualification, Official Receiver Ken Beasley said:
Mr Smullen caused significant loss to people by causing Worldwide Sports Limited to induce them to invest in a scheme which was not legitimate. It used images without consent; made claims as to assets held and the security of the investments which were not founded; and used the funds raised not for investments, but seemingly for his personal expenditure. In doing so, his conduct fell far below that expected of directors of a limited company.
In failing to pay proper regard to the companys affairs, Mr Keating, as a formally appointed director and the sole signatory to the bank account, failed to discharge his responsibilities to the company and its creditors.
The Insolvency Service has strong enforcement powers and we will not hesitate to use them to remove dishonest or reckless directors from the business environment as shown in this case.