From the details posted, I would guess that no one necessarily or deliberately over-valued the stock. It’s more likely that the stock diminished in value, as a headset instruction sheet would over time. That being the case, what should have happened is that the stock inventory should have been restricted to items currently being sold, so that no value was attached to old stock.
Mind you, the story doesn’t seem quite right in that it looks like the mistake was discovered, the bank where told and then the bank have asked for their money back and wound the company up as a result. I can’t imagine many people in a similar position would have told the bank. The prudent course of action would have been to keep quiet and to build the inventory up over time, which would have allowed the company to sort the problem out in their own time, rather than risking the bank pulling the plug.
But, there’s a fundamental problem with that funding model as it means that to avoid the over-valuation problem you would need to design your new part, then make a thousand of them to hold in stock, while you sold 1000 of the old ones, before selling the new ones. In effect you’d have to delay taking new products to market because of the banking covenant. If you didn’t do that you would either have to hold more stock than required by the bank, or you would breach the covenant every time you replace one product with a new one.
There’s plenty of things in that story that would add weight to a theory that the CEO took a course of action that would lead to them maximising their financial position from a failing company. While that would be pure speculation based on the facts presented I think that we don’t have the complete picture here.
