Hugh Ashton, the merchant banker who took the helm at Wheway a few months ago, said it 'was not a good thing' for the company to have paid its 1p interim dividend last year. 'It was a mistake, to be honest,' Mr Ashton told the Independent on Sunday.
The payment cost the company pounds 1.398m, just pounds 2,000 less than the profit and loss account reserves left at the time the dividend was announced. The Companies Act states that a business cannot pay a dividend if it does not have enough distributable reserves. Other than the profit and loss account, Wheway had no distributable reserves.
Mr Ashton said the board's decision was based on optimistic forecasts for performance over the rest of the year. However, Wheway lost pounds 2.8m in the second half and now has a deficit on its profit and loss reserve of pounds 3.18m.
The dividend was actually paid after the end of the financial year, but Mr Ashton said the board was not aware of the extent of the problems - otherwise it would have cancelled payment.
Mr Ashton has said that Wheway would be best positioned as part of a stronger group. It was in merger talks with McLeod Russel until just before Christmas, when McLeod said it wanted to cut the purchase price. Talks resumed earlier this month, but McLeod lost patience and launched an all-share offer on Thursday.
Wheway has said it is in talks with two other parties, but it has not disclosed who. One market favourite, Senior Engineering, has denied any interest.
Wheway's accounts, published last month, were qualified by its auditors on the grounds that it needs the support of its bankers to be considered a going concern.
The accounts show that on 3 October Wheway had pounds 19m of debts, including finance leases, compared with shareholders' funds of pounds 15.3m. Mr Ashton has admitted that the borrowings have gone up substantially since then.Reuse content