Investors in Redstone Telecom are calling for the Department of Trade and Industry to investigate the former high-flying company's dramatic fall from grace.
An extraordinary general meeting will be held on Friday in the presence of an insolvency practitioner from Ernst & Young, ready to put the company into administration if a crucial motion is not passed. The rescue plan is to approve nearly £30m of funding from directors, shareholders and new institutional investors.
The company was floated in 1999 and raised £20m, then a further £120m was raised through a rights issue at the beginning of last year. The company, which sponsors the Welsh rugby team, was once valued at over £1bn. It is now worth £2.9m.
But a combination of spending on acquisitions, investment in broadband networks and poor corporate governance appears to have contributed to this precarious situation.
But a new management is in place following the resignation of the finance director, chief executive and chairman.
Dennis Carmedy, who owns about 1 per cent of Redstone and is heading an organisation representing private investors in the company, is calling for an investigation into the rapid reversal in fortunes.
"Once we have got this EGM out of the way and the fate of the company is assured there are a number of questions that need to be asked about what went on," he said.
The rescue plan has been dogged by controversy because the original intentions were thought to exclude small shareholders.
The Redstone Action Group was set up, led by Mr Carmedy, which threatened to vote the proposals down if the plans were not changed. The dispute has been resolved, and the group is recommending that shareholders approve the plan.
But Ian Brown, the new chief executive of Redstone Telecom, is warning that shareholders should turn up to vote, because a minority could still be intending to vote the motion down. "There is a fringe element that would like the company to go into administration," he said. "There's a lot of anger around as there are a lot of people who have lost a lot of shares that have lost a lot of value."
If the company does go into administration, shareholders are unlikely to get any cash back.
"We need their vote to save the company, which will allow us to ... deliver some value back to them," said Mr Brown.
"People have to bear in mind that if they vote it down there are 500 jobs at stake."
He intends to focus the company on finding "end-to-end" solutions for businesses, providing packaged telecoms and communications services. Mr Brown and the acting finance director, Andrew Walsh, are putting about £300,000 into the new company so it is clear they are hopeful of turning it around.Reuse content