Exclusive: Collapse fears for chamber hit by blunders

A document seen by the Yorkshire Post states that the Mid-Yorkshire Chamber, which has had to secure a deal with creditors to keep trading, had found it "extremely difficult if not impossible" to budget for the cost of its activities after expanding.

A childcare voucher scheme, enabling staff employed by local companies to save money on childcare costs, was also found to have a 148,000 deficit, which the chamber has now had to pay off.

The chamber acts as an intermediary for the scheme, in which employers deduct a sum from employees' wages in return for childcare vouchers.

The document also reveals that the chamber was ordered to pay a large amount of additional tax following a full VAT investigation, and lost the right to bid for some Government training contracts because an inspection branded the quality of some of its services "unsatisfactory" in 2006.

At its peak, around a decade ago, it was the largest chamber in the country, with turnover of more than 8m and 400 staff. It now employs 50.

In 2006, Keith Welton, the then chief executive, was paid compensation for loss of office of 511,910, with pension contributions of 230,000. This followed a decision made by the chamber's directors to make the chief executive and a number of posts redundant.

The document, written on behalf of the board, is described by Steven Bonfield, the company secretary, as a "candid analysis...of the circumstances which have led it into the unfortunate situation where it is possible that it may shortly have insufficient cash to be able to meet the debt obligations it owes to its creditors as they fall due."

It was prepared as part of a Company Voluntary Arrangement (CVA), a legal mechanism which can be used as an alternative to liquidation by any company that owes money which it cannot repay in full on time.

At a meeting last Friday, all the members present or voting by proxy ratified the creditors' decision to approve the CVA which means it can continue trading.

Creditors will now get 78p in the pound back. If they had gone into liquidation they would have only got 18p.

Mr Bonfield yesterday confirmed that the Chamber had been investigated by Customs and Excise in 2006 and ordered to make a declaration for VAT underpayment in connection with the sale of its former headquarters in Aspley, Huddersfield, and other properties in Halifax and Huddersfield.

He said: "At the request of the developer the chamber elected to charge VAT on the disposal of its property assets. Being an extraordinary one-off, the transaction relating to the sale of the properties was not entered in the chamber's automated accounting system but was dealt with manually outside that system on which the quarterly VAT return was produced.

"The requirement to make a manual adjustment to the quarterly return was overlooked and it was filed incorrectly without accounting for the VAT collected on the property sales. The chamber was required to make a declaration of underpayment which, given the size of the property transactions, was for a significant amount.

"It seems to have been the size of the undeclaration and underpayment which triggered an investigation by Customs and Excise."

He also confirmed that, after failing an official inspection, the chamber was not allowed to renew some of its training contracts after April 2006.

In a statement, the chamber directors said they were optimistic that the CVA agreement would enable the chamber to go forward on a sound financial footing.

Asked whether he thought the chamber's policy of expansion had been misguided, Mr Bonfield said yesterday: "The policy spans a period of over 30 years. We have been through three recessions, several Governments and countless changes in Government training initiatives and funding and each time the chamber has tried to adapt to and adjust its policy to suit."

A spokesman for the British Chambers of Commerce said: "UK Chambers of Commerce are weathering the current economic difficulties successfully.

"Mid Yorkshire Chamber has faced particular legacy difficulties and is now striving to restructure its finances. Chambers of Commerce are independent organisations and the key responsibility for the British Chambers of Commerce is to ensure that businesses in Mid Yorkshire continue to receive relevant and high quality services."

Trading rules: What the law says on the subject

According to Section 214 of the Insolvency Act 1986, Wrongful Trading is when a director continues to trade when they knew, or ought to have known, that their company was insolvent and had no prospect of avoiding insolvent liquidation.

If found guilty, a director will be required by the court to contribute to the assets of the company as compensation to those creditors who suffered due to the wrongful trading.

The level of contribution is normally assessed on the extent to which the company's financial position deteriorated since it was known or should have been known that it was insolvent, with no "reasonable prospects" of avoiding insolvent liquidation.

Fraudulent trading, according to Section 213 of the Insolvency Act 1986, is when a director carries on business with the intention of defrauding their creditors.

A company becomes insolvent when it is unable to pay its creditors when they fall due for payment, and/or when the value of its assets does not cover its liabilities.

Under the 1986 Insolvency Act, the date of insolvency is defined as the date on which a liquidator, provisional liquidator, administrator, administrative receiver or supervisor of a voluntary arrangement is appointed.