No fair way for individuals bunkered by golf resort and hotel investment scam: Directors hit with 19 years disqualification

2 Jul 2015 04:13 PM

Two directors of Lancashire-based Worldwide Sports Investments Limited have been disqualified from being directors for a combined 19 years for their roles in the company, which purported to offer investments in a golf course and hotel development in Portugal.

The disqualifications follow an investigation by the Official Receiver’s Public Interest Unit (North), part of the Insolvency Service.

Christopher Smullen, 44, a director of Worldwide Sports Investments Limited received a disqualification order made by the Court on 26 May 2015 barring him from promoting, managing or being a director of a limited company for 13 years, from 16 June.

The allegations put to and found proved by the Court in respect of Mr Smullen’s conduct were that:

1. Between 23 July 2010 and 04 February 2013 he caused Worldwide Sporting Investments Ltd (“WSI”) to mislead individuals into making payments to WSI, purportedly in respect of investment in a hotel and golf course. Furthermore, he caused the company to dissipate the funds, which meant no investor received any benefit. In particular:

• WSI used advertising and promotion literature purporting that the project was endorsed by a prominent professional golfer which was untrue and for which it had no permission from the golfer or his agent
• WSI’s marketing literature stated that investors could expect fixed returns of 200%
• WSI advertised that the investments were totally secure when in fact there was no security held by WSI
• WSI indicated to potential investors that the investment opportunity was almost fully subscribed, when in fact only 11 of the 100 shares were apparently applied for, thereby pressurising them into making a swift decision
• Analysis of the company bank account indicates that 11 individuals made payments to WSI totalling £275,000 and paid administration fees totalling £2,145
• There is no evidence to suggest that investors received any benefit from their investment or that any investment was made on their behalf by WSI. There is no evidence to suggest that WSI had any agreement in place with the hotel and golf course to which its marketing literature referred
• Bank statement analysis indicates that Mr Smullen caused investment monies to be used for his own personal expenses as well as those which might reasonably represent company expenditure
• Mr Smullen caused investment monies totalling £194,914 to be used for gambling, resulting in net losses of £11,629 to WSI

1. Mr Smullen failed to maintain preserve or deliver up adequate accounting records, as he is required to, meaning that it has not been possible to:

• Ascertain the full details of each of the investors who put money into WSI
• Determine whether any payments were due to HMRC for PAYE/NIC
• Determine the reason for cash withdrawals totalling £51,777 from the account between 20 May 2011 and 23 April 2012
• Determine the reasons for sums paid from the bank account for items that do not appear to relate to legitimate business expenses, estimated to amount to at least £43,900
• Determine whether amounts paid by cheque totalling £72,856 were for legitimate business expenses
• Determine whether £11,434 paid to airlines and hotels via debit card was for legitimate company business

Fellow director, Sean Keating, 54, gave an undertaking to the Secretary of State for Business, Innovation and Skills (BIS) not to promote, manage, or be a director of a limited company for 6 years, from 17 September 2014. Mr Keating did not dispute that between 23 July 2010 and 02 August 2011 he abrogated his duties in relation to Worldwide Sports Investments Limited by:

• facilitating the dissipation of investment funds totalling at least £94,091 and not overseeing the use of the bank account to which he was the sole signatory to ensure that monies removed from the account were for legitimate company expenditure and did not come from monies held on trust
• signing at least 7 blank cheques and passing them over to another director without determining what those cheques would be used for.

The company was wound-up by the Court on 4 February 2013 owing creditors and shareholders at least £278,201, following a petition by an investor owed £25,195.

The investigation showed that:

• The company was set up ostensibly to provide investment opportunities in a hotel and golf resort in Portugal
• The number of investors was said to be limited to 100 shares at £25,000 each plus an administration fee of £195 per share
• The scheme was promoted as being endorsed by a prominent professional golfer, but neither he nor his management company had given the rights to Worldwide Sports Investments to use his name or image
• Individuals were comforted by the knowledge that the professional golfer endorsed the scheme and that his agent was on the board of directors
• However, his agent was a member of the board to protect his client and was unaware that the scheme was actively being promoted and investments were being made, and resigned when he could not obtain information from the main director, Mr Smullen
• The company indicated that it had purchased the hotel and golf resort for some £54,000,000, investments were therefore secure and investors would receive guaranteed returns of 200%
• Other inducements to invest included suggestions that the scheme was almost completely subscribed and that other professional golfers were involved
• Eleven individuals each made investments of £25,000 plus administration expenses of £195 to Worldwide Sports Investments Ltd
• The investigation could not uncover any assets held by Worldwide Sports Investments Ltd. There did not appear to be any substance to the claim that the property had been acquired for £54,000,000
• It further appeared that there was no agreement in place with the hotel and golf resort and that the image of same was used without consent
• No investments were made by the company in respect of any of the 11 individuals, nor did they receive refunds of or any benefit from the sums invested
• The funds were received into the company bank account and were dissipated over time. There were no monies available at the date of liquidation
• Analysis of the company bank account suggested that some, if not most, of the expenditure therefrom was not connected to the purported business
• No accounts or books and records were provided by the director in post at the date of the winding up order. It cannot therefore be determined whether some or any of the monies were used for business purposes. Nor can it be determined whether there are further creditors, eg HM Revenue and Customs, which would increase the deficit in this case. It has not been possible to determine if any of the monies expended were used to buy items which may have been realised for the benefit of creditors

Commenting on the disqualification, Official Receiver Ken Beasley said:

Mr Smullen caused significant loss to people by causing Worldwide Sports Limited to induce them to invest in a scheme which was not legitimate. It used images without consent; made claims as to assets held and the security of the investments which were not founded; and used the funds raised not for investments, but seemingly for his personal expenditure. In doing so, his conduct fell far below that expected of directors of a limited company.

In failing to pay proper regard to the company’s affairs, Mr Keating, as a formally appointed director and the sole signatory to the bank account, failed to discharge his responsibilities to the company and its creditors.

The Insolvency Service has strong enforcement powers and we will not hesitate to use them to remove dishonest or reckless directors from the business environment as shown in this case.

Notes to editors

Worldwide Sports Investments Limited (CRO No. 07324179) was incorporated as a private company on 23 July 2010. The last registered office of the company was 34 Church Street, ORMSKIRK, Lancashire, L39 3AW.

The company was wound up by the Court on 4 February 2013. There were no known assets and an estimated deficiency to creditors of at least £278,201.

Mr Keating gave an undertaking on 25 August 2014 to the Secretary of State not to be a director for 6 years. The undertaking has been accepted and the period of disqualification commenced on 17 September 2014. Disqualification undertakings were introduced in April 2001, they are an administrative equivalent of a disqualification order but do not involve court proceedings.

A disqualification order was made by the Court against Mr Smullen on 26 May 2015 for a period of 13 years. The period of disqualification commenced on 16 June 2015.

A disqualification order has the effect that without specific permission of a court, 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.

Disqualification undertakings are the administrative equivalent of a disqualification order but do not involve court proceedings. Further information on director disqualifications and restrictions is available.

The Insolvency Service administers the insolvency regime, investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. It may also use powers under the Companies Act 1985 to conduct confidential fact-finding investigations into the activities of live limited companies in the UK. In addition, the agency authorises and regulates the insolvency profession, deals with disqualification of directors in corporate failures, assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees, provides banking and investment services for bankruptcy and liquidation estate funds and advises ministers and other government departments on insolvency law and practice.

Further information about the work of the Insolvency Service, and how to complain about financial misconduct, is available.