The irregularities were discovered in the company's Norwich-based GEI Autowrappers subsidiary, which produces wrapping machinery for fast-moving consumer goods such as confectionery, and accounts for 25 per cent of turnover. The trouble was highlighted by a group cost-cutting review - following February's profit warning - which discovered management lies in the monthly accounts, crediting the subsidiary with getting through substantially more orders than it had done.
The investigation revealed a profit shortfall in the region of pounds 3m. Brokers Collins Stewart tipped GEI to make a headline loss of pounds 2.5m, and shares closed at 20p, against a year high of 116p. Sources confirmed that Autowrappers managing director Michael Whitaker had been sacked, alongside three directors.
Non-executive chairman John Fletcher said: "It's very distressing ... It reflects badly on everyone, including myself."
The group confirmed that Midland Bank is leading negotiations with GEI's other UK and overseas banks. A source said that it seemed unlikely that GEI would go under but that it may well be a takeover target.
An analyst said the news was shocking but "not that much of a surprise". He added that the group had been the subject of takeover speculation since the profit warning, when entrepreneur Luke Johnson bought a 4.5 per cent stake after identifying the stock as undervalued. Mr Johnson declined to comment.Reuse content