Two ex-directors of Wrekin Construction have been banned after using a ruby to inflate the troubled company’s accounts.
The Insolvency Service banned David Unwin and Nicholas Ibbotson from acting as directors for ten and seven years respectively after the ruby was falsely valued at £11m but eventually sold for £8,000.
Mr Unwin, 65, of Widnes, bought Wrekin in June 2007. In March that year it had a turnover of more than £100 million, but had a deficit on its accounts of £7.6million.
Mr Unwin caused another of his companies, Tamar Group Ltd, to transfer the ruby known as “The Gem of Tanzania” to Wrekin in return for shares that year.
The 2kg ruby, bought by Mr Unwin in 2006, was listed in Tamar’s accounts at the time as worth £300,000. But when it was transferred to Wrekin’s accounts in December 2007 it was shown as being worth £11m.
Wrekin fell into administration on 10 March 2009 with losses of more than £45m to its creditors. When administrators tried to sell the gem they found the document stating its value as £11m was a forgery. Eventually the ruby was sold for £8,000.
The Insolvency Service said that in the weeks before the ruby was transferred to Wrekin, Mr Unwin acknowledged there were uncertainties over its value in a meeting with the company’s former auditors.
Mr Ibbotson, 56, of Sutton Coldfield, Wrekin’s finance director, was aware of those uncertainties but still told Wrekin’s new auditors that £11m was the ruby’s genuine market value, the Insolvency Service said.
He and Peter Greenwood, Wrekin’s managing director, approved the company’s 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, the watchdog said.
Listing the ruby as being worth £11m made the firm appear to have a financial surplus of £6.3m when it was actually insolvent.
Mr Greenwood was disqualified from being a director for nine years in 2011.
The Insolvency Service said Mr Unwin caused Wrekin to make substantial payments to companies he controlled in the months before its collapse. The payments included £768,177 to Britannia Management Services Limited supposedly with the intention that it would pay HM Revenue & Customs on Wrekin’s behalf. But the money was transferred to other companies controlled by Mr Unwin to help their cashflow. The Insolvency Service said: “The investigations showed that all along the intention was for BMS not to pay HMRC straightaway but instead to pay Mr Unwin’s other companies.”
Mr Unwin also caused Wrekin to sell some machinery and equipment to Equatrek(UK) Ltd in November 2008 and a month later to buy them back for £749,000 more than the sale price. Mr Unwin and Mr Greenwood had also caused a sham sales invoice to be created in Wrekin’s records in order to account for the substantial difference between the sale and purchase price of the assets, the Insolvency Service said.
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 Wrekin’s 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.”