Peter Gelardi has spoken to HousewaresLive.net for the first time about the “totally unnecessary fiasco” of the collapse of his Wrapit wedding gift business – and although he will now no longer be able to act as a company director he insists that the company was not in fact trading whilst insolvent.
Earlier this month, he and Wrapit co-director Pepita Diamand were disqualified from company directorship for eight and seven years respectively for taking advance payments from customers although the business, according to the Insolvency Service, had run out of money.
However, Gelardi maintains that this was far from the case.
He told HousewaresLive.net: “In summer 2008, Wrapit plc had no borrowings and was trading profitably. However, because of the way its business worked, there was an unusually long period between the receipt of payments and the delivery of gifts. This led to a ‘contingent liability’ for HSBC to repay customers for any gifts undelivered if Wrapit went bust.
“HSBC were, of course, aware of this, but discovered, during the due diligence associated with a £2m investment in the company, that their estimation of the potential liability was inadequate.”
According to Gelardi, instead of working with the company – and the investor – to ensure that the contingent liability never became an actual liability, HSBC advised Wrapit that it was sequestering all its credit card income (80% of the total) into an account reserved for HSBC’s benefit.
“We were assured that this was temporary – until the £2m investment was completed,” Gelardi said. “They then dragged their feet over approving the investment while their reserved fund built up. Once they had thus accumulated £1m, they then advised us that they’d changed their minds and were withdrawing our credit card facility on instructions from head office.
“We became one of the few companies to go bust with £1m in our bank account,” he said.
Gelardi maintains that it was this supposedly temporary diversion of funds to HSBC which starved the company of money. He also says it was this that led Diamand and himself to use the credit card refund mechanism to divert funds to staff and suppliers – the Insolvency Service found that Wrapit made almost £250,000-worth of false credit card refunds.
However, said Gelardi: “Neither Pepita Diamand or I benefited in any way from this and neither was it illegal. The charge against us from the Insolvency Service is not that we diverted the funds but that, by doing so, we prolonged the trading period before we called in the receivers and thus, for that four-week period, were ‘trading in insolvency’.
“This is patently incorrect, as it was not a lack of funds which instigated our call to the receivers (we were expecting to receive a £2m investment) but the fact that HSBC later suddenly withdrew our card processing facility, without which we could not trade.”
He went on: “Previous losses, over several years, although expected, meant that the company’s balance sheet was weak (although, ironically, it was our attempt to address this through the fundraising which triggered the events which led to the insolvency) and, to the extent that we allowed this to happen, we must accept some responsibility for the collapse, which, of course, was unquestionably a disaster for the staff, suppliers and customers.
“However, it was not the result of any ‘scam’ and I’m happy for other business people in the industry to make up their own minds about the real reasons for the pain and loss caused by the totally unnecessary fiasco.”
Gelardi also told HousewaresLive.net that, rather than having been banned from being company directors for the periods stated, he and Diamand had voluntarily given an undertaking “because the cost of fighting the case in court was more than we could afford – having lost all we had in the Wrapit collapse”.