Hartstone in crisis after irregularities found

Irregularities at Hartstone Group, the troubled leather goods and hosiery company, came to light after its bankers sent in accountants to examine the books, writes John Murray.

The company announced on Thursday that it had suspended a senior executive who diverted funds from a company foreign-exchange hedging contract to his own account. A pounds 50,000 loan to him may be irrecoverable.

The board was in a crisis meeting yesterday after a black week for the company. Eight days ago, the shares crashed 91p to 34p after the company warned that profits for the year to March would be far lower than the City had expected.

The chairman and chief executive, Stephen Barker, who had aggressively built the group by acquisition, was replaced by Shaun Dowling, a non-executive director. The finance director, David Grattan, is also being replaced.

Hartstone also disclosed on Thursday that it had arrangements to pay certain employees of a subsidiary pounds 1m over four years. This year pounds 260,000 had been paid out and profits would be reduced accordingly.

The company also announced that it was near a standstill agreement with its bankers after its profits warning made it likely to breach covenants.

It has made a deferred payment of 1bn pesetas ( pounds 5.2m) to the vendors of Azner Industrial and was in negotiations over payments totalling dollars 12.8m ( pounds 8.3m) due on two other acquisitions.

Hartstone shares dropped 5p to 36p yesterday, before recovering slightly to close at 391 2 p.