The report was commissioned in August 1990 after Astra's takeover of PRB, the Belgian defence company. In February 1992 Astra went into administrative receivership.
The authors, Colin Rimer QC and John White FCA, examine only whether the company's shareholders were properly informed of the true financial position at the time of the takeover. They excluded any investigation into allegations of involvement by Astra in the illicit arms trade with Iraq and Iran in the late 1980s. Astra became linked to the Iraqi supergun affair when it was revealed that PRB was involved in selling materials for the gun.
Astra began its trading life as a fireworks manufacturer with a turnover in 1981 of under pounds 2m. By September 1989 it was an international defence contractor with a turnover of pounds 200m and net assets of pounds 80m. The company grew through acquisitions, financed by rights issues and increased borrowing.
But the DTI inspectors found that the company's results often showed a profit when there should have been a loss, and that shareholders were deprived of any real understanding of the financial position of the company for most of the decade.
In 1986, the directors of Astra made a reverse takeover into Francis Sumner, to give the group a full listing. The report shows that Astra's management knowingly falsified an invoice to improve its profits ahead of the takeover. One director then allegedly used his own cash to settle the invoice.
The inspectors allege that several directors knew of this invoice, and tried to divert their attention from it. These directors included Gerald James, the former chairman of the company, and John Andersen. Mr James claimed yesterday that this invoice was real and was related to Astra's involvement in the trade with Iran. He described the inquiry as a 'cover-up'.
The inspectors find that there is 'no evidence to suggest that Stoy Hayward either were, or should reasonably have been, aware of the fact the invoice was a false one'.
But in later stages of the company's development, the inspectors fault the auditors for several oversights.
In July 1989 Astra decided to acquire PRB alongside a pounds 32.6m rights issue but the inspectors believe the circular for this was misleading. They criticise PaineWebber for a 'fundamental shortcoming' in failing to verify Astra's working capital statement at the time of PRB acquisition. Its initial draft of the chairman's letter showed 'a material lack of relevant experience on the part of its draftsman and was manifestly inadequate'.
Stoy Hayward said: 'We are astonished to learn from the inspectors' report of the acute fraud perpetrated by certain directors of Astra in 1986 . . . the inspectors criticise the directors and ourselves on certain matters . . . Stoy Hayward strongly refute the conclusions reached by the inspectors and will be making our views known to the DTI.'Reuse content