A POLICE investigation has been launched into "financial irregularities" at the Bolitho School after an investor who helped save the ailing business from bankruptcy claims he lost £100,000.

The fee-paying independent school, a registered charity and Penzance's biggest employer with 160 staff, was rocked last year when its bank, HBoS, called in its overdraft.

It won a temporary reprieve after a successful appeal to parents for £500,000, but went into administration days before Christmasleaving a list of creditors totalling almost £4.5 million.

When the investor, who lives locally but does not wish to be named, was told his cash had not been ring-fenced in the "Friends of Bolitho" loan scheme, police were alerted.

Former chairman of the school's governors, James Clarke, said he was interviewed by officers last month.

Mr Clarke, who resigned in August last year, told The Cornishman this week that the cash should have been secured against school properties but documentation was "overlooked". "He should have had security in properties owned by a company called IBolitho, but security was never put in place," he said. "It should have been put in place when I was there but it wasn't – I was one of many people that should have done it but we didn't know the company was going to go into administration."

The school's financial affairs were conducted through two limited companies.

One of the these, The Bolitho School Foundation Ltd, is a registered charity which owned the freehold land and property at the main site.

A second company, IBolitho Ltd, was set up to buy and manage properties used for boarding in Alexandra Road.

Mr Clarke was a director of both companies. He confirmed that police had quizzed him regarding a dispute over the sixth-form centre, which The Cornishman reported last week was recently shut, and the £100,000 loan.

He said the angry investor had called him personally and demanded payment. "He asked for the money back but it wasn't a personal liability it was a company liability," said Mr Clarke.

The investor has contracted solicitors and is currently in the process of attempting to recover the money.

Global Education Management Systems' (GEMS) chief financial officer, Alan Lawrence, said the company had agreed to protect cash lent directly to the school when they took over, and that which came from parents and grandparents of pupils and staff.

"We cannot take responsibility for the actions taken by others and all we could do was look at the information available," he said.

"It is exceedingly regrettable but this is what happens when businesses go into administration. We have gone on record as saying we feel the school was financially mismanaged."

The school allegedly left dozens of local businesses out-of-pocket when it went into administration. Documents seen by The Cornishman show florists, tradesmen, food suppliers, garages and oil and gas suppliers among the long list of creditors.

The Charities Commission is investigating potential governance failures within the charity.

A spokesman for Penzance police confirmed that "a man has been arrested and questioned with regard to possible financial irregularities at Bolitho School".