THE directors of two North-East companies who were jailed after a £17m VAT scam are appealing against paying back the debt.

It was revealed last night Michael McGuiness, 37, and Leslie Heads, 47, are to appear at a tribunal to fight a claim by Customs and Excise to claw back the cash.

They were jailed last week, along with Darren Bell and Peter Levitt, for laundering the proceeds of a £68m mobile phone fraud.

Father-of-four McGuiness was the company director of Teesside Transport Management Services (TTMS) and a director of Head's business, Chicane Traffic Management, both based on Teesside.

Invoices, letterheads and the company bank accounts were used to buy and sell millions of mobile phones without paying tax and the pair were jailed for money laundering.

Both companies are now liable to pay the VAT that is owed but the directors are appealing against the decision.

They claim most of the money went to a man referred to in court, as Mr X, but it was revealed the company directors kept thousands of pounds for themselves.

McGuiness bought himself a £13,000 Lexus car and in one transaction made £5,000 alone.

He said Mr X, a North-East businessman, who has not been prosecuted, had a controlling influence over him.

There are now fears the company, which had a contract with ferry operator P&O, will go into liquidation because of the debt.

It was already in financial trouble when the fraud took place, Teesside Crown Court was told.

Defence barrister, for McGuiness, Alastair MacDonald, said in court: "The VAT liable from TTMS is over £6m.

"It is absolutely enormous. The company employs about 20 drivers and other employees.

"That is subject to a VAT tribunal hearing. The financial burden to this defendant is devastating.

"He is under a sentence of death because of the VAT liability. He was not involved in the sale or the purchase of the mobile phones."

Chicane, which ran a traffic control centre on the M6 toll road, was run by Heads but McGuiness was the company accountant and a director.

It owes £2.5m in VAT.

A spokeswoman for Customs and Excise said last night: "Two of the companies involved in the court case have appealed against the VAT assessment to recover the VAT.

"Appeals will be heard by the VAT tribunal at a later date."

McGuiness, of Redcar, east Cleveland, was jailed for four years, Heads, of Ingleby Barwick, Teesside, received 15 months, Bell, of Brotton, east Cleveland, was jailed for 12 months and Levitt, of Hartlepool, for a year