Two directors of Connaught Asset Management Limited have been disqualified for a combined period of 16 years following an Insolvency Service investigation. The investigation revealed the improper use of up to £106m of company funds.
Michael Anthony Davies of Radstock, Somerset, and Nigel Walter of Medstead, Hampshire, have been banned from acting as directors for seven and nine years respectively. The two ex-directors are not allowed to control or manage a company without leave of the court.
CAM entered administration owing £34m to creditors
Connaught Asset Management acted as the asset manager of a number of funds which were sold to the public as investments by independent financial advisers.
The largest fund managed by the company was launched in March 2007 and amassed an investment pool worth £106m. The fund primarily loaned money to a third party, Tiuta International Limited, which would, in turn, make funds available to its clients in the form of residential and commercial bridging loans.
Despite managing this substantial fund, the company was suspended in March 2012. It was subsequently placed into administration owing £34m to creditors in September 2012, before being liquidated in December.
A failure to fulfil their duties to the fund
In the course of the Insolvency Service investigation, it became clear that neither Mr Davies nor Mr Walter ensured CAM carried out its responsibilities in respect to the fund; an allegation the directors did not dispute. Through the neglect of the directors’ duties, Connaught Asset Management failed to:
- Review the progress of the bridging loans made by Tiuta International Limited in respect to monies borrowed from the fund.
- Make sure all monies were fully repaid to the fund once the loans were completed and repaid by Tiuta International’s borrowers.
The directors’ failure to fulfil their responsibilities caused the fund to suffer losses. Despite receiving redemptions from Tiuta’s borrowers, Connaught Asset Management neglected to pass these redemptions onto its investors as it was contractually obliged. The investigation found at least £23m was not repaid to the fund.
Tiuta also retained money drawn from the fund for loans it did not make to its customers, generating a further loss of at least £3.4m.
It was not until March 2011 that Connaught Asset Management became aware of problems with Tiuta’s loan book. Despite uncovering the problem, CAM did not fully establish its true position. Instead, the business continued to allow Tiuta to retain redemptions and hold onto funds when loans were not agreed. In total, the fund lost in excess of £12m during this period.
Substantial losses as a result of its failings
Following the case, a spokesperson for the Insolvency Service Outsourced Investigations team said: “Connaught Asset Management failed to protect the investors in the fund as it should have done and the amounts lost by private investors as a result of its failings were substantial.
“The lengthy bans for the directors responsible for the company’s failings reflect the seriousness of those failings and the robust stance the Insolvency Service will take against those whose conduct falls below accepted commercial standards.”
Nigel Walter and Michael Anthony Davies’ disqualifications commenced on the 24 November 2014 and 4 December 2014 respectively.
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