Account for money deals, Reynolds told

This is what he told the hearing:

The £900,000 loan from GRUK to Darlington FC

Barrister Anthony de Garr Robinson, on behalf of liquidators Deloitte and Touche: "Why did you think it was a proper use of company funds for £900,000 of the company's money to be given to Darlington Football Club, when the company had only a few days earlier written off a loan of £6m because Darlington couldn't pay it?"

GR: "The reason I probably did it was because I put money in. Another reason is my main object was to get that stadium complete."

Barrister: "What benefit was passing to GRUK as a result of making these further loans to Darlington?"

GR: "I might have had £900,000 out and put a million in. I used it (GRUK) as a railway track."

...............

Barrister: "Darlington was always an insolvent company. What benefit did GRUK get for investing that money in Darlington? It was an interest-free loan wasn't it?"

GR: "Try to imagine a boil on your neck and it goes red up to the top and gets a scab and then it bursts and get better. Think of the stadium like that.

"The stadium could have made £4m a year if it had contained Italian and Chinese restaurants, a nightclub and held corporate functions.

"You get a turnover of £8m a year on a profit of £3m which I would put on the pitch. It is capable of doing that. The trouble is we were so near to finishing it and it went sour."

...............

Barrister: "There was a chance that Darlington might not be able to repay it the £900,000 loan?"

GR: "I couldn't see that it would not. I would believe any loans Darlington got from anybody, it could repay it."

Barrister: "You remember that the Darlington loan was written off in its entirety?"

GR: "That's accountant to answer that, not me."

Barrister: "Can I suggest to you, Mr Reynolds, that if you are company director with responsibility to the company and you have assets, you don't give those assets to a third party interest-free."

GR: "GRUK and Darlington Football Club was all one at one time."

Barrister: "In June 2001, Darlington shares had been transferred to you personally. From June 2001, GRUK had no interest in Darlington. Nevertheless, £900,000 of GRUK's money was given to Darlington."

GR: "What about the money I put in personally myself?"

Sale of the business to Vertex

Barrister: "You said in a statement to the Official Receiver that in the few years preceding the Vertex sale, you'd invested something like £13m on the plant and the equipment."

GR: "Here you have another misunderstanding. No disrespect to yourself Mr Robinson, it's confusion. When you are talking about the plants being taken out, one is a chipboard line and one is a laminate line. These plants cost a considerable lot of money. When they Vertex took over, they had a brand-spanking new line . . . valued at £8m. That was the chipboard line."

Barrister: "That is what you had put in at a cost of £8m?"

GR: "Yes. You can check that with anybody. That's cheap for a chipboard line. The chipboard line cost £8m. The other one wasn't as bustrous sic as the other one."

Barrister: "What does 'bustrous' mean?"

GR: "Heavy. That's the word I would use. Then you had the laminate line, which was worth about £2m. We made a lot of that ourselves."

...............

Barrister: "The valuation that was given to the machinery in the agreement (to sell to Vertex) was £6.537m. Why is it there was such discrepancy between what you say was the cost and what the value was?"

GR: "I was sick to the teeth with it by then. It was a quick sale. You could go and buy a car, say a Rolls-Royce or what you want. It could be valued at £20,000 but if you want to sell it at 15 there is nobody can do anything about it. You can do what you like. Realistically, I dropped the price and that's it."

Barrister: "Do you think that if you had taken steps to advertise the sale of your business and had taken more time over the sale price, a higher value would have been achieved."

GR: "I don't know."

...............

The barrister said the accounts for the year ending April 30, 2001, showed that GRUK's plant and buildings were valued at £5.18m but sold to Vertex for £2.65m. They were later sold on for £3.25m.

GR: "I am shell-shocked. How much did you say they got?"

...............

He was asked by the barrister if he had documents to back up his claims that some of GRUK's creditors had been paid off.

GR: "You might not believe me if I told you there was seven and a quarter tons of paperwork. There will be paperwork to represent that."

The barrister asked if Mr Reynolds would look for the paperwork.

GR: "It won't be possible for me to do that. I'll tell you why. I have got enough on my plate as it is. They know what they are looking for."

Barrister: "You have just sold the business of the company. There were unpaid creditors. Inevitably, there was a risk that the company would end up going into liquidation. One might expect the controlling director of the company to ensure that a proper record is kept somewhere. Did you not do that?"

GR: "A company that had been running for 25 years, you wouldn't expect it to go pear- shaped in 12 months. We believed at the time we'd paid off the creditors."

...............

GR: "I created a lot of employment in the North-East. As soon as they Vertex took over they got rid of the people who knew how to do it and fetched duck eggs in that didn't know what they were doing."

...............

Mr Reynolds was questioned about why he agreed to sell to Vertex and why he agreed to be paid in instalments, rather than an outright sum.

Barrister: "You did recognise didn't you that selling the business and the plant to a company with no track record and no independent funding was a gamble?"

GR: "They did have a track record. They gave wonderful lip service. They were very convincing. I couldn't see it going bump in 12 months."

Barrister: "If they had a good track record wouldn't one have expected them to be able to raise funds?"

GR: "They did try."

Barrister: "But they couldn't could they?"

GR: "They couldn't, no. Chipboard lines in general, they are a queer thing to finance."

A kitchen trade centre belonging to GRUK

GR: Using his exact words "The kitchen trade centre realistically was never GRUK's. If you go to the kitchen trade centre, which physically was built long before GRUK was ever in existence."

Barrister: "Would I be right in thinking that the kitchen trade centre comprises three things - the business, the land itself and stock? Would it be fair to say that was transferred to you?"

GR: "It was nothing to do with GRUK really. I had the trade centre down the bottom of Shildon maybe ten or 15 years before Direct Worktops or GRUK was in existence."

Barrister: "It was brought into the company wasn't it? I think we have agreed that previously."

GR: "I don't know that. I don't know whether it was brought in or not. It might, yes, it possibly was. I just don't know. What you fail to understand here is that was mine solely. By the way, if I did put it into the company, surely I'm entitled to that back out."

Barrister: "At some point, was it before the Vertex sale, the kitchen worktop centre was taken out of the company by you?"

GR: "Yes."

Barrister: "Did you pay anything to GRUK in return?"

GR: "Yes. I can't remember, but I did pay something out of a cheque book. It went to GRUK."

Barrister: "That's very odd Mr Reynolds, because if the transfer had happened a year before, that transfer would have appeared in the accounts for the year before. It doesn't appear in the 2001 accounts. It appears in the draft accounts for 2002."

Mr Reynolds said his accountant was behind on the accounts.

Barrister: "You say that you wrote a cheque to GRUK?"

GR: "You are asking me questions which I'm oblivion to."

The voluntary arrangement

In September 2002, GRUK entered into a voluntary arrangement (CVA).

Barrister: "As a matter of law, the proposal for the CVA has to be by the directors. This is a proposal that was made by you and your fellow directors?"

GR: "No. It wasn't my proposal at all."

Barrister: "Were you aware of the contents of the proposal when it was made?"

GR: "No."

...............

The court was told that Vertex was late in paying some instalments to GRUK after buying the business. Yet Mr Reynolds entered into a CVA with Roadmade, a company described as "the same people as owned Vertex", which would have seen the company pay GRUK £850,000.

Barrister: "By September 2002, Vertex was late on a large number of payments due to GRUK. Can you explain to me how Roadmade could properly have sums amounting to £850,000 to pay you in circumstances where GRUK was getting nothing?"

GR: "Well, the fact is we were then considering sending the administrators in to warn them off. I made it quite plain to them. I said if there's no money coming in, I'm putting a winding up order. Really, deep down, I didn't want to do that."

Barrister: "I can see why that might make Vertex pay GRUK. Why would a threat of that sort make Vertex pay money to Roadmade so it could pay money out to you and Mr Tennick George's cousin Richard?

GR: "You have got me confused with that."

Payment to Hall Construction

The barrister referred to a Hall Construction (the contractors for the Reynolds Arena) invoice for £799,986, which appeared to have been paid by Mr Reynolds.

GR: "What has that got to do with GRUK if I paid the money personally?"

Barrister: "Did you pay it personally?"

GR: "Yes."

Barrister: "Where did that money come from?"

GR: I sold a flat in London, which I bought for a reasonable price. I sold it for £1.8m. It was in Hampstead village, a very exclusive part. Next to the Spice Girls. Sporty Spice. My wife went barmy over it. She has fallen out with me since. She hasn't spoken to me since."

GRUK and Just Wood dealings

Barrister: "GRUK paid bills that were due to Just Wood which, in the end, exceeded £1m. It was all carefully documented."

GR: "I honestly believe the fraud squad should have been in and investigated thoroughly and methodically."

Then, referring to the public examination, he said: "This isn't very deep. You haven't even touched the surface."

The stadium

GR: "We put all our personal cash into this venue. A lot of it went through GRUK but GRUK didn't pay it back. I would think GRUK owes quite a bit of money."

* The public examination hearing was adjourned to a date to be set by Judge John Bailey.