The duo, Andrew Kyprianou and Colin Werb, were prosecuted by The Pensions Regulator (TPR) and admitted two counts of making prohibited employer-related investments.

Company directors Andrew Kyprianou, 60, of Glebe Avenue, Enfield, Middlesex and Colin Werb, 72, of The Birches, Grimsgate, Diseworth, Derby, were sentenced to 16 months in jail for each offence, suspended for two years, at Leeds Crown Court on Friday. They were also ordered to carry out 250 hours of unpaid work.

The court hear that the two men, directors of Eastman Staples Limited, “fabricated” minutes of meetings to disguise the loans as investments. The men tried to use the pension scheme money to invest in a project to convert a disused church into offices and a community space.

Eastman was founded in 1921 and is one of Huddersfield’s oldest and largest suppliers to the textile industry.

The pair initially pleaded not guilty to the charges but changed their pleas at a hearing in August.

Both were charged with providing false or misleading information to TPR contrary to section 80 of the Pensions Act 2004. These counts will lie on file.

The court heard how banking facilities had been withdrawn from the company after the prosecution was launched and Mr Kyprianou had been given until the 16 December to repay £1.1m in loans.

At the time the offences took place, the scheme had 19 members and approximately £1.67 million invested.

His Honour Judge Mushtaq Khokhar said: “These are offences of a very serious nature because they involve a breach of trust.”

He described Mr Kyprianou as “arrogant” and said the defendants had put the pension scheme at risk by removing large sums of money from it. They also failed to manage the potential conflict of interest in running a business and acting as trustee of the occupational pension scheme. They also did not seek professional advice about how to manage these issues.

Mr Werb was described as playing “second fiddle” but the judge said he held both defendants equally culpable in how they performed their roles of trustee.

The judge said both men should consider themselves lucky not to have received an immediate prison sentence. However, he gave the men credit for their guilty pleas and because money had been paid back to the scheme.  

Erica Carroll, TPR’s director of enforcement, said: “Despite being experienced business people and having been warned by their adviser about payments between scheme and employer, Werb and Kyprianou continued to flout laws designed to protect pension savers.

“The pair, who were in a position of trust, recklessly used money meant for their staff’s retirements to prop up their company despite the risk to the scheme – and their employees’ pensions – if the employer failed.

“This case should serve as a reminder to all trustees on the rules around employer-related investments and a warning that we will prosecute those who ignore them.”