“With great power comes great responsibility” – P. Parker
December 11th, 2018
P Parker? Peter Parker, of course. Still none the wiser? Peter Parker is The Amazing Spiderman, otherwise known as “Spidey” to his fans. His oft-quoted bon mot above refers to the moral obligation of superheroes to use their powers for good. But that same phrase could equally apply to company directors, could it not? Let me explain…
Now I’m certainly no superhero but I do share one of Spidey’s talents. Whenever he is walking into hidden danger his ‘spidersense’ begins to tingle – and I get a similar sensation when faced with some company accounts. It’s that feeling that something isn’t quite right…a sixth sense that tells me to dig a little deeper behind the apparently innocent figures presented on the page.
Some doubtful behaviour by directors is, of course, immediately apparent. When Dominic Chappell (who bought BHS from Sir Philip Green for £1) appealed against his conviction for not complying with the Pensions Act the judge, Christine Henson QC, was scathing. “We found his evidence entirely unbelievable”, she said. No doubt whatsoever as far as the learned judge was concerned. Plain as a pikestaff.
But not all directors’ actions or corporate collapses are quite so cut and dried. If her Honour had been a customer of the fashion retail brand Orla Kiely – along with the Duchess of Cambridge, Kiera Knightly and others – she may have been shocked when it fell into administration (here) in September. So were retail analysts who knew the company was set to expand in the USA.
The accounts showed that although profits had fallen by 50 per cent, the designer and her husband had paid themselves more than £400,000 between them before the business collapsed owing nearly £3 million to the bank and £2.5 million to trade creditors. Members of staff who were made redundant were presumably unimpressed by this disclosure.
More recently, Patisserie Valerie, the upmarket boulangerie chain announced that it had detected “potentially fraudulent accounting irregularities”. It came hard on the heels of HMRC filing a winding-up order for more than £1 million of unpaid taxes and rumours of a £20 million black hole in the accounts.
This came completely out of the blue, led to its shares being suspended and its finance director put on gardening leave. All this from a company with more than 200 stores, sales of £114 million and profits (apparently) of £20 million. As with Orla Kiely, you would never guess that this company was in trouble.
My tingling sixth sense is working overtime on this one and it would be fascinating to sit in on a board meeting, particularly after the management protested that it wasn’t aware that there had been a problem until it was told – five days after HMRC had filed its winding up order (no, really, you read that sentence correctly).
How can a company whose profitability averages out at £100,000 per store not have the cash to pay a £1 million tax bill?, I hear you ask.
Well, as the Amazing Spiderman himself might have said: “Oh what a tangled web we weave, when first we practice to deceive….. “
This article leads nicely into a series of technical publications (our “Insolvency Technical Briefs”) which I will be publishing on our website in January, February and March 2019 on company directors: who (and what) they are, their duties and the possible penalties they face if they don’t do their job right! Watch this space…