A 2kg uncut ruby gemstone, the Gem of Tanzania, was given an inflated book value in the company accounts of £11m. It eventually realised a sale price of just £8,000.
David Unwin and Nicholas Ibbotson have become the latest directors of the Shropshire construction company to be banned as directors for the scam that inflated the company’s accounts. Their disqualification comes after the 2011 disqualification of a third director Peter Greenwood over the same scam, following an investigation by the Insolvency Service.
Mr Unwin, 65, of Widnes, Cheshire, signed a 10-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.
Wrekin Construction Company Ltd reported an annual turnover of more than £100m for the year to 31 March 2007 its, but it had incurred trading losses and had a deficit on its accounts of £7.6m.
The investigations found that in June 2007 Mr Unwin bought Wrekin from its then owners and in December 2007 he caused another of his companies, Tamar Group Ltd, to transfer the ruby gemstone to Wrekin in return for shares.
The ruby had been bought by Mr Unwin in 2006 and included as an asset in Tamar’s accounts at that time, at a value of £300,000. However, when the gem was transferred to Wrekin’s 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 £45m to creditors. When the administrators tried to sell the gem they found that the document showing the £11m valuation was a forgery. Eventually the stone was sold for £8,000.
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 company’s former auditors that there were uncertainties about the gem’s value.
Mr Ibbotson, Wrekin’s finance director, was aware of those uncertainties, but nevertheless told Wrekin’s new auditors that £11m was a genuine market value. Mr Ibbotson and Wrekin managing director Mr Greenwood approved Wrekin’s accounts to 31 December 2007, which included the gem as an asset worth £11m, 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 £11m asset in the accounts to 31 December 2007, Wrekin gave the impression that it had a financial surplus of £6.3m, whereas its true position was an insolvent one.
The Insolvency Service’s investigations further showed that in the months leading up to Wrekin’s 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 Ltd and Equatrek (UK) Ltd.
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.”