Failed claims management firm Rebus did not disclose the extent of its financial problems to over a hundred new investors just before it entered administration.
Rebus collapsed in February, shortly after receiving £816,790 through the Crowdcube crowdfunding website. Investors are likely to have lost their cash permanently.
However the Times reports the firm kept the fact restructuring experts had been called in to work on cashflow problems hidden from potential investors.
Administration documents show Resolve was hired to help Rebus find professional investors to help plug a funding gap that threatened its ability to operate.
Rebus’s Crowdcub pitch asked for new cash to “expand the team and hire key staff” in a bid to take advantage of a market it valued at £55bn.
In addition, the company’s online pitch featured Richard Rhys, a former financial adviser banned by the FSA in 2012.
Crowdcube admitted it not know Rebus had hired the restructing firm before it began fundraising. But the site said it would “not have been surprised or alarmed” as “it is normal for business to explore different funding options in their early stages”.
Start-up adviser ECF Solutions founder Rob Murray Brown says: “Rebus was bound to fail before it went on to Crowdcube. The Crowdcube pitch didn’t merely gloss over the cracks in the business, it basically invented a whole new wall to hide them.
“We do need to remove this type of avoidable mistake from crowdfunding platforms for good if we want to flourish.”