David Ross was found guilty and sentenced today at Winchester Crown Court for an offence of fraudulent trading by factoring false and misleading invoice information through factoring company International Factors Ltd (IFL). Using Harley Marketing Ltd (HML) a company he defrauded IFL of more than £500,000.
His brother Cameron Ross had earlier pleaded guilty to assisting David Ross in the management of the company at a time whilst David Ross was disqualified through bankruptcy. Cameron Ross was acquitted of fraudulent trading.
While David Ross (43) an undischarged bankrupt was the driving force behind Harley Marketing Ltd (HML), a direct mail marketing and print brokers operating from premises in Tetbury, Cirencester, Cameron Ross (38) held the position of director. David and Cameron Ross were sentenced to 3 years and 3 months respectively. David Ross was disqualified from being a director of a company for 10 years and Cameron Ross a similar disqualification for 6 years.
Background
This case revolves around a factoring agreement between Harley Marketing (HML) a direct mail marketing and print broking firm and International Factors Ltd (IFL) a subsidiary of Lloyds Bank Plc.
HML began on 22 August 94 with Cameron Ross appointed sole director but with David Ross acting as general manager could not be shown as a director because he was bankrupt but he made many of the day to day management decisions.
In 1995 HML secured a factoring arrangement with International Factors Ltd (IFL) which enabled HML to obtain money from IFL against invoices issued by HML. IFL would then collect the amounts due on the invoices from the customers of HML. During the period of the factoring agreement IFL advanced £1.3 million to HML against £2.2 million worth of invoices and £300,000 worth of credit notes.
Following the termination of the agreement, IFL were left with £664,269.88 worth of invoices for which they were unable to obtain payment. On 27 November 1997 IFL wrote off £664,269.88 (the sales ledger balance). HML had been advanced funds against these invoices. The amount owed to IFL by HML, including interest and charges, was in excess of £500,000.
The fraud
Suspicions of improper practice became known to the SFO in July 1998. Investigations revealed many examples of bogus invoices. Examples included the issuing and subsequent factoring of invoices where no goods or services had been ordered. Some show the issuing and factoring of invoices following an order but before delivery, but delivery failed to take place in whole or in part.
A condition of the agreement was that invoices should only be submitted when goods were delivered. Frequently invoices were submitted for factoring following a quotation or before important pre-production detail had been agreed with the customer.
In some case credit notes were issued to the customers. This tended to follow complaints made by customers that invoices had been issued but the work had not been done. The issue of premature or wholly bogus invoices followed by credit notes generated cash flow for HML.
Credit notes were not always issued to cover false invoices but where they were, they had the effect of camouflaging the extent of disputed debt. This was particularly the case with HML because of their practice of re-issuing the original invoice as a new invoice, at the same time as issuing the credit note.
HML failed to ensure proper procedures were followed at its office, it failed to supply IFL with hard copy invoices and it failed to include sufficient detail on the invoices, which would enable HML's customers to identify the work for which invoices were submitted.
Invoices were issued by HML to customers with the request that payment be made to IFL. It would seem that on occasions when cheques were received directly by HML they were not passed on to IFL, notwithstanding the facility which was in place at the bank to deal with what was a common occurrence in factoring agreements.
The indictment
1. Fraudulent trading, contrary to Section 458 of the Companies Act 1985. (David & Cameron Ross)
2. Being concerned in the promotion and/or management of a company whilst undischarged from bankruptcy, contrary to Section 11 of the Company Directors Disqualification Act 1986. (David Ross)
3. Aiding and abetting an undischarged bankrupt to be concerned in the promotion and / or management of a company, contrary to Section 11 of the Company Directors Disqualification Act 1986. (Cameron Ross)
Notes for editors:
1. Two persons were charged in this case David and Cameron Ross for their business dealing in Harley Marketing Ltd.
2. Cameron Ross pleaded guilty to the charge of aiding and abetting an undischarged bankrupt, (David Ross) on 23 June 00.
3. The investigation of the case was carried out jointly by the Serious Fraud Office and the Gloucestershire Constabulary.
4. The SFO Case Controller was Claire Whitaker. Prosecuting counsel was Mr Jonathan Fuller. His Honour Judge Broderick presided over the case.
David Jones - 020 7239 7001
Caroline Paul - 020 7239 7004
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