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A recent case reported by the Insolvency Service highlights how the best of intentions by company directors can not only significantly undermine professional administration advice, but can also leave directors facing accusations of reckless and even fraudulent behaviour.

The case relates to an uncut ruby called the Gem of Tanzania, which was listed as an asset at an estimated value of £11 million on the accounts of Shropshire civil engineering company Wrekin.

David Unwin, a 65-year-old businessman from Widnes in Cheshire, bought Wrekin in June 2007, at a time when company accounts showed a deficit of £7.6 million.

He transferred the ruby to the company in exchange for shares in December 2007, from another of his companies, Tamar Group.

But a valuation certificate estimating its worth at £11 million was ultimately found to be forged, and when Wrekin entered administration, insolvency practitioners were only able to raise £8,000 from the sale of the ruby.

In particular, Wrekin’s finance director, 56-year-old Nicholas Ibbotson, knew the gem’s value was in doubt, but did not pass that information on to auditors, undermining the administration advice that was given in return.

“Directors who recklessly present misleading information in this way damage the confidence of companies to do business with each other, and undermine the business environment,” said Pabitar Powar, head of the authorisations team at the Insolvency Service.

Misleading administrators also clearly makes it impossible for them to do their job correctly, putting creditors under greater risk and reducing the likelihood of steering the firm clear of company insolvency.