Two company directors were imprisoned today for a fraud surrounding the collapse of Lancashire firm Universal Bulk Handling with losses of at least £12 million. Christopher Freeman was sentenced to 2 years imprisonment and Alan Hodgkinson to 9 months. They were also disqualified from acting as company directors; Freeman for 10 years and Hodgkinson for 5 years.
This case concerns the failure and bankruptcy of the tank container manufacturer Universal Bulk Handling Limited in Burscough, Lancashire. When the company was placed into receivership in February 1999 the firm had a turnover of around £22m a year and employed 270 staff but it was, in fact, a loss-making business whose poor performance was fraudulently hidden by senior management.
Trading difficulties
Universal Bulk Handling was formed in 1958. In 1990 the company was acquired by, and became a wholly owned subsidiary of, Hadleigh Plc ("Hadleigh"), a firm based in Suffolk. In 1990 Christopher Freeman was appointed financial director of Universal Bulk Handling and in 1991 Alan Hodgkinson became its managing director.
During the early 1990s the tank container industry generally experienced adverse trading conditions resulting from increased foreign competition and increased cost of raw materials.
It is clear that Hadleigh were a demanding company and in order to present a more favourable financial picture of Universal Bulk Handling to the parent company, Freeman began to falsify the accounts. Consequently, both Freeman and Hodgkinson concealed the true position and state of affairs of the business from Hadleigh and from the auditors.
Cover up exposed
It was no doubt their intention to trade out of the difficulties eventually and to restore accuracy to the accounts. However this was not achieved and the situation deteriorated from year to year. Eventually in early 1999 a worsening cash flow at Universal Bulk Handling caused Hadleigh to carry out a detailed investigation into the accounts and this in turn led to the discovery of the true state of the finances of its subsidiary.
In the trading years from 1995 onwards, the accounts of Universal Bulk Handling showed an apparently profitable company making an average annual profit of some £2m. When the true position was discovered it was clear that no profit was being made. Instead there was an overall discrepancy of not less than £11.5m between what the accounts declared to be owing to the company and what in fact the company owed to both its suppliers and its customers.
As a result of this discovery it was clear to Hadleigh that continued business at its subsidiary was untenable and it was placed into receivership causing the closure of the factory, the loss of 270 jobs and the demise of a number of creditors. (See note for editors below).
Some of Universal Bulk Handling's suppliers had been given credit guarantees by Hadleigh in respect of debts its subsidiary had incurred. The obligation to satisfy the amounts owed by Universal Bulk Handling to creditors caused Hadleigh, and eventually another subsidiary, to be placed into receivership in late 1999, again with the attendant loss of employment and losses to creditors and to shareholders of not less than £12m.
Proceedings
The SFO investigation, conducted with the Lancashire Police, commenced in November 1999. Freeman and Hodgkinson were charged in January 2002, as was a third defendant.
On 8 November 2002 Freeman pleaded guilty to false accounting, forgery and fraudulent trading. On 1 May 2003, just before a jury was to be sworn, Hodgkinson was re-arraigned and pleaded guilty to fraudulent trading. No evidence was offered against the third defendant (Ian Papworth former Universal Bulk Handling production manager) and he was acquitted.
At Liverpool Crown Court today, Freeman (d.o.b. 01/10/54) was sentenced to 2 years' imprisonment and disqualified from acting as a company director for 10 years. Hodgkinson (d.o.b. 31/12/53) was sentenced to 9 months' imprisonment and disqualified from acting as a company director for 5 years
Note for editors:
A number of staff who had been employed at Universal Bulk Handling submitted to the receiver a bid to buy the assets of the old business. The bid was accepted and the new business now trades as UBH International Ltd, albeit with a reduced workforce.
Serious Fraud Office, Elm House, 10-16 Elm Street, London, WC1X 0BJ
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