Charles Patrick Adair has been disqualified from acting as a director for 8 years for allowing two companies to operate with a lack of commercial probity.
The actions by Verve Limited and The Verve Fleet Management Limited (collectively referred to as the Verge Group) from April 2010 resulted in at least £6,990,077 being due to creditors.
Mr Adair’s disqualification follows an investigation by the Insolvency Service and means he is prevented from directly or indirectly becoming involved in the promotion, formation or management of a company from 15 December until 2023.
The Verve Limited was incorporated in February 1998 and started trading shortly after. The Verve Fleet Management Limited was incorporated in November 2004 and traded from January 2005. Verve and Fleet were part of a group of companies which traded in and around Glasgow in the retail, rental and servicing of passenger cars and light commercial vehicles. Verve was the parent company and all companies within the group trade as one business, the Verve Group.
Mr Adair was the sole director of both Verve and Fleet throughout their period of trading. At the date of Administration The Verve Limited had estimated assets totalling £1,160,500 and estimated liabilities of £5,543,171 and The Verve Fleet Management Limited had no assets and estimated liabilities totalling £2,347,788.
From 2008 onwards, the Verve Group had been experiencing trading difficulties, increased cash flow pressures and reduced availability to finance. In particular, there was pressure from the Verve Group’s bankers for a significant reduction its borrowings and the bank’s exposure. Around May 2013 a sale of the Verve Group’s van centre was agreed which would have resulted in all outstanding liabilities to the bank being cleared.
Trading continued with the director, Mr Adair directing the focus of the business on cash generation, rather than profitability, to ensure the Verve Group remained within its existing bank facilities until the sale of the van centre was concluded. The sale of the van centre was delayed and ultimately did not complete following which the bank refused to honour further direct debits resulting in vehicle funders attempting to remove funded vehicles. The director then placed the two companies into Administration.
The Insolvency Service investigation found substantial failures in the financial information maintained by the Verve Group which resulted in incorrect information being provided to the vehicle funders. The consequence was that vehicle funders advanced moneys on false information and in circumstances where they would not have so done had they been given accurate data. The industry procedures are such that the vehicle funders rely upon the accuracy and integrity of the dealerships. The vehicle funders have sustained losses estimated by the Joint Administrators at between £5 million and £10 million.
The trail of inaccurate data and false documents is such that it is not possible to accurately identify the precise loss. In particular:
- from at least April 2010 onwards, the Verve Group miss-claimed manufacturers bonuses and discounts in respect of vehicles which were purchased by the Verve Group for use as demonstrator or hire vehicles, and which were sold on the same day as they were acquired or shortly thereafter in breach of agreements with manufacturers
- the Verve provided false vehicle details to funders to obtain advance funding on vehicles which had not yet been manufactured
- false hire and lease agreements were created to conceal the fact that vehicles had been sold in order to mislead funders’ auditors that a vehicle could remain on funding. The purpose was to provide an explanation for vehicles not being physically present on site at the date of an audit
- 183 vehicles were sold between 13 January 2012 and 15 November 2013 without discharge of the funding. The practice of selling vehicles without discharging consignment funding or stocking loans was highlighted at audits carried out on behalf of funders. Mr Adair was aware of issues raised by auditors in relation to the sale of funded vehicles from July 2011 onwards
- the Verve did not properly allocate receipts for vehicle sales against vehicles within its accounts, identifying unallocated sales of up to £4,320,there is no indication that the VAT was correctly accounted for in relation to the unallocated sales
- the Verve Group disguised its true financial position in management accounts by posting losses on individual case sales to a vehicle depreciation reserve, which totalled £7,498,695 at the date of administration, and not making corresponding debit entries within the Company’s management accounts (profit and loss). This has the effect of inflating the book value of stock.
- between 13 August 2013 and 29 November 2013, at least 52 vehicles were found to be subject to “dual funding” having been supplied on a consignment funding basis by a car manufacturer and then subsequently funded by a finance company following adoption as vehicle stock, without payment having been made to the car manufacturer to discharge the consignment funding
- from at least September 2013 onwards, part exchange vehicles were sold onto third parties without the Verve Group settling the existing finance agreement on the vehicle resulting in customers and funders being required to pay the unpaid amounts due
Commenting on the disqualification, Cheryl Lambert, Chief Investigator at the Insolvency Service, said:
“Directors have a duty to ensure that the employees and procedures they oversee comply with the law. Directors who do not comply with this basic obligation can expect to be investigated by the Insolvency Service and enforcement action taken to remove them from the market place.
In this case, Mr Adair failed to make sure that the necessary controls and procedures were in place to prevent his employees from implementing dishonest business practices. He therefore oversaw an operation that put its (and, by extension, his) interests before that of creditors, suppliers and other parties with which it transacted, including obtaining money by providing false information. Such activity goes to the very core and basis of the economic system.
Taking action against Mr Adair is a warning to all directors to seriously consider their duties and obligations. They cannot hide behind the excuse that ‘others did something’.”
A person with a disqualification cannot:
- act as a director of a company
- take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership
- be a receiver of a company’s property
In addition that person cannot act as an insolvency practitioner and there are many other restrictions are placed on disqualified directors by other regulations. Further information on director disqualifications and restrictions is available.