Cattles, the sub-prime lender, has sacked six executives, including two board members, after a probe into accounting irregularities discovered a £700m hole in the company's balance sheet.
The company, which is holding survival talks with creditors over a £500m loan, said a report into its main trading arm, Welcome Financial Services, revealed that several managers jeopardised the company's future after they allowed inadequate provisions against bad debts.
James Corr, the finance director, and Ian Cummine, the chief operating officer, who co-founded the Welcome business, were told their suspensions would be made permanent. This followed an investigation that revealed "a breakdown in controls" which resulted in bad debts being deferred from one year to the next and the extension of repayment terms on underperforming loans to avoid making a loss provision in the accounts.
The other four sacked executives made up the rest of the management team at Welcome. Cattles uncovered the breakdown in controls in February and warned in April that provisions for 2008 and previous years would be £700m higher than expected.
The board said in April that it had asked repeatedly over the previous year for information about bad debts but was misled and was only offered inaccurate or incomplete information.
Rapid expansion of the business in the earlier part of the decade had left it labouring under £2.4bn of debt, much of which is due to be renegotiated this year.
A £500m loan was due for repayment this month, but is expected to be delayed as part of talks this week with several banks. A £150m loan from Royal Bank of Scotland is due to be repaid by the end of the year.
Cattles was founded in 1927 by Yorkshireman Joseph Cattle to offer weekly credit to low-income households. It listed on the stockmarket in the 1960s and in the last decade became a darling of the high street banks, which effectively used the firm as a backdoor route to poorer customers. Like rivals Provident Financial and London & Scottish, Cattles gained notoriety among anti-poverty campaigners for offering expensive short-term loans at interest rates far in excess of high street rates.
The six bosses, who have been suspended since March, are also likely to face the Financial Services Authority.
Shares in the firm, which is based in Batley, near Leeds, were suspended after the firm delayed its annual results to resolve the accounting crisis.
Cattles' main Welcome Finance business is still up and running but has suspended lending to new customers in order to conserve funds. Its Lewis Group debt collection business remains profitable.
Along with the six executives who have been sacked, Cattles added that the group's treasury and risk director, Mark Collins, is to leave the company immediately.