KPMG reveals folded Faulds owes creditors debts exceeding £1.5m
Chester: still not out of the woods over
Former members of staff at the now defunct Faulds are still out of pocket to the tune of £60,000, according to a report compiled by receivers KPMG, which also says that unsecured claims against the defunct company now total £1,551,077.The report was unveiled at a creditors’ meeting held at KPMG’s Edinburgh offices on Monday 15 December, for which, surprisingly, only five people turned out.
Speaking at the meeting, Blair Nimmo of KPMG also gave a strong indication that legal action could take place to try and recover the £750,000 that was taken out of the company by Chairman Dennis Chester shortly before the company ceased trading.
The report compiled by KPMG detailed the financial fall of Faulds up to September 2003 and showed that Dennis Chester was the sole shareholder in the company after acquiring it in December 2001.
At that time the company was operating profitably. In fact, pre-tax profits up to December 2001 were £655,132 (on a turnover of £5,037,191) compared to a pre-tax profit of around £79,691 (on a turnover of £2,652,824) up to September 2003.
In July 2002 Faulds acquired Malcolm Moore Deakin Blazey in London for £138,690 and the agency was operating at a loss of £395,000 until December 2002.
In March 2003 Chester sent his fellow Faulds directors an e-mail telling them that the company was experiencing cash flow problems and in August 2003 Bibby Factors was appointed to factor debts of £1,144,988. Further cash flow problems led to the directors seeking advice from an insolvency practitioner, David Rutherford of Cowan & Partners, who was appointed provisional liquidator on 26 September 2003. Three days later Bibby appointed Blair Carnegie Nimmo and Gary Steven Fraser as joint receivers.
In addition to the £1,144,988 debt factored by Bibby, a further £267,538 of invoices was raised post-receivership by the joint receivers. However, at the time of receivership Bibby’s indebtedness had been reduced to £595,301.
As the recovery got under way, £15,000 was reclaimed by the sale of a computer server, and an auction held at Faulds’ former Dundas Street offices raised an estimated £30,000. Scottish Rugby Union debentures are also expected to realise £22,700 and £16,927 was recovered from the bank and petty cash.
The investigation into whether Chester was entitled to take £750,000 out of the company is well under way.
Nimmo said: “Legal advice has been taken on the validity of that payment, so it is difficult to say anything at the moment. But this is a matter that will inevitably end up in a legal dispute. I am sure Mr Chester thought that he was entitled to that money. But coming so close to the receivership is unusual.”
A representative was present from The Scotsman, which is owed an estimated £45,000 from ads placed by Faulds.
Also present was a theatrical agent who said that he knew that things were bad for Faulds when his payments slowed down and he received a cheque with a note advising, “Cash this as soon as possible”. This was a week before receivers were called in.