Saturday, 28 March 2009

HOW TO TURN £300K INTO £11M

There's a fascinating story in today's Financial Times.


My father had tipped me off about it a while ago. In his 70s he is still delivering thousands of leaflets a year to keep the Conservatives out. He has decided in the 8th decade of life that the internet is an optional extra he will gaze lightly at, but he does understand why I blog. He said there he was surprised that there had not been more media coverage of this story, so here in a way is my father's "blog.". As a proud Briton he dislikes how many Tories are talking Britain down to try and gain electoral advantage.

Wrekin Construction a company with 600 employees said it was being let down by the banks, click here for the full report. The key part says:

Conservative MP Mark Pritchard, whose constituency takes in Wrekin Construction’s headquarters, said the company had been forced into administration because of the Royal Bank of Scotland’s (RBS) “inflexibility” in releasing funds. RBS which has a majority share owned by the taxpayer and Mr Pritchard said some of the blame had to be apportioned to the government. He said:

“This is a long-standing and successful company with a large order book which has been driven into administration by the inflexibility of RBS. “Some of the blame has to fall on the doorstep of 10 Downing Street, given the Government’s majority shareholding in RBS.”

The MP said the administration had been caused by RBS not releasing funds for cashflow even though the firm had an order book he said was worth tens of millions of pounds.

So that’s simple isn’t it? Gordon Brown’s fault, it must be true a Conservative MP has looked into it and pronounced.

That’s on March 11th.

Then this story appears on March 15th, again the key part:

Investigators were last night trying to establish whether a gem purported to be worth £11 million was used to inflate the assets of a building firm which has gone into receivership. The mysterious ruby - called the Star of Zanzibar - was bought by Shropshire-based Wrekin Construction. On paper, it is the most expensive ruby on record.

But officials from Ernst & Young, the administrators called in to handle Wrekin's affairs, are now understood to be trying to establish why the gem was bought, and indeed whether it exists at all. Wrekin reported in its accounts for 2007 that it had bought the Star of Zanzibar from Tamar Group, one of its shareholders, for a "fair value" of £11 million. This was paid for in interest-bearing preference shares.

The purchase transformed the appearance of Wrekin's balance sheet, helping to turn an £8 million liability in March 2007 to net assets of £6 million by the end of that year.

The hunt is now on for the Star of Zanzibar.


So now it is looking like there has been some questionable financial accounting going on. Conservative MP Mark Pritchard is nowhere to be seen to comment on the difficult issues and to answer awkward questions. He has gone from saying in the House of Commons

"If the Business Secretary comes to Shropshire, rather than having green custard on his face, he will definitely have egg on his face"

to

"I acted on the facts that I had at the time," "The fact that the facts changed in a fast-moving case is essentially a different matter."

When all he needs to do is to say sorry to his constituents and the Prime Minister for his error of judgment. Many firms are failing at present because of the credit crunch, but as the FT report shows this company was not in good health before the credit crunch and the whole episode with the ruby being revalued from £300,000 to £11,000,000 seems bizarre.

It does UK plc no good when it is talked down for partisan advantage. We will all suffer economically in a world where business confidence is a scarce commodity.

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