Directors suspended in latest Cattles saga

THE crisis at finance company Cattles continued to unfold as it said it had breached its banking covenants, would have to restate its 2007 figures and that three more executives had been suspended.

The trio suspended, pending the outcome of a forensic investigation into its operations, are finance director James Corr, chief operating officer Ian Cummine, and Adrian Cummings, compliance and risk director at Cattles’ subsidiary Welcome Financial Services.

The Leeds-based firm warned that it would post a “significant pre-tax loss” for the year ended December 31, meaning it will be necessary to restate the group’s financial statement for the previous year.

It is also in breach of covenants under its borrowing arrangements and will therefore be seeking appropriate waivers from its debt providers.

An external investigation is continuing.

As previously announced, chief executive David Postings has taken direct management control of Welcome Financial Services.

Gary Edwards, group IT and business services director, has taken on operational responsibilities at Welcome and Susan Puddephatt has assumed the role of risk and compliance director for the group.

Earlier this month Cattles warned that its profits would be even lower than previously expected after auditors found that the group’s impairment policies had been applied incorrectly.

Deloitte, the group’s internal auditors, identified a breakdown in internal controls, which has resulted in the impairment policies not being applied correctly.

It said that it also expected to enter into discussions with its banks and the holders of its outstanding Eurobonds and US Private Placement Notes.

In February, it announced that the release of preliminary results would be delayed pending completion of a review of bad loan provisions.

That announcement sent Cattles shares, which had already crashed 90% in the last 12 months, plummeting another 53%.

In January, Cattles announced that it had withdrawn its application for permission to take retail deposits after it was told by the Financial Services Authority (FSA) that a licence was unlikely to be granted until the “unprecedented turmoil in the financial markets has stabilised” and the terms of its renegotiation of £635m of bank facilities had been finalised.

Discussions are ongoing with its bank syndicate regarding the refinancing of facilities due for repayment in July.

At the beginning of this year the group also revealed plans to cut around 1,000 jobs and shut its Hull office where around 400 staff are employed.

The group, which also runs the Cattles Invoice Finance subsidiary, which has offices in Manchester and Liverpool and is up for sale, said the cost-cutting measures would save around £40m a year and would help to ensure that the company remained profitable.

Cattles said although it expected to win new business in 2009, volumes in its Welcome Finance division would be reduced by around 75% compared to 2008 trading levels.

In December, Cattles cancelled its final dividend of 2008 as well as this year’s interim payout in a bid to save cash.

Bad debts at the lender are up as consumers’ disposable income is squeezed.