Versailles Group

Versailles Group plc was a British financial-services company focused on trade finance, mezzanine lending, and gap finance. Incorporated in 1990, it primarily served businesses that had difficulty obtaining conventional bank credit. Rather than presenting its activities simply as loans, the company structured transactions in which it purportedly bought and sold goods or raw materials. Economically, these arrangements financed clients’ purchases of raw materials and the subsequent sale of finished or traded goods. This structure was central to the company’s business model and later became important to investigations into the authenticity of its reported activity. The company charged comparatively high rates for its financing. The reference material describes annual interest of approximately 21%, together with administration fees generally ranging from 2.5% to 3.5% of invoice value. Such pricing reflected the perceived risk of lending to customers with weak credit histories, while also allowing Versailles to present itself as an alternative source of funding for companies excluded from mainstream banking. Versailles expanded rapidly during the 1990s. It was admitted to the Alternative Investment Market in September 1995 and moved to the London Stock Exchange’s main market in October 1997. At its peak it was described as a FTSE-250 company based in London. Reported revenue increased from £46.6 million in 1995 to £232.4 million in 1999, while operating profit rose from £2.8 million to £15.3 million over the same period. Its share price also increased sharply, rising from 7.5 pence at flotation to £2.50 in September 1999. These figures helped create the impression of a rapidly growing specialist-finance business, although they should be understood in the context of the subsequent fraud investigation and collapse. In December 1999, trading in Versailles shares was suspended. The company entered administrative receivership in early 2000 after alleged fraud by senior leaders was discovered. Investigators examined a reported discrepancy of approximately £100 million in the company’s accounts, along with fictitious trades, forged documents, the circulation of funds to create the appearance of genuine commercial activity, and alterations to computer records. The investigation concluded that purportedly phony transactions represented more than 80% of reported turnover in every year from 1992 through the end of 1999. The company’s collapse left debts of more than £70 million to banks, including Barclays and the Royal Bank of Scotland. Carlton Cushnie, the company’s chairman and chief executive, and Frederick Clough, its finance director, surrendered to the Metropolitan Police Fraud Squad and faced charges of fraudulent trading under section 458 of the Companies Act 1985. Lorraine Jones, Clough’s personal assistant, was also charged with aiding, abetting, counselling, or procuring the alleged fraudulent trading. The reference material further states that Cushnie had profited approximately £29 million by selling Versailles shares before the company became insolvent. The available material does not establish the final outcomes of all criminal proceedings and therefore does not assert them here. Versailles Group plc should be distinguished from Versailles Group Ltd., a Boston-based mergers-and-acquisitions boutique founded by Donald Grava in January 1987. The two organizations were not affiliated. The British Versailles Group ceased operating as a functioning listed finance company following its receivership and fraud-related collapse.

Versailles Group plc was incorporated in 1990 in the United Kingdom as a provider of alternative trade finance. Its target customers were businesses with poor credit histories or limited access to ordinary bank facilities. The company’s transactions were legally documented as purchases and sales of goods or raw materials. In substance, however, they functioned as financing arrangements: Versailles funded clients’ acquisition of raw materials and the later sale of goods, earning interest and transaction fees. The financing was expensive by conventional banking standards. Reported terms included interest of about 21% per year and administration charges of approximately 2.5% to 3.5% of invoice value. The model was intended to compensate for perceived credit risk and to offer liquidity to companies that mainstream lenders considered difficult to finance. Versailles grew quickly during the 1990s. It joined the Alternative Investment Market in September 1995 and transferred to the main market of the London Stock Exchange in October 1997. The company was later described as a FTSE-250 constituent. Reported revenue rose from £46.6 million in 1995 to £232.4 million in 1999, while operating profit increased from £2.8 million to £15.3 million. Its market valuation and share price also climbed dramatically, with the share price moving from 7.5 pence at flotation to £2.50 in September 1999. The apparent growth story unraveled in late 1999. Trading in the shares was suspended in December, and the company entered administrative receivership in early 2000. The collapse exposed substantial obligations to banks, reportedly exceeding £70 million, with Barclays and the Royal Bank of Scotland among the principal lenders. Investigators examined a discrepancy of roughly £100 million in the accounts and alleged that the company had used fictitious transactions, forged documentation, transfers of money designed to simulate commercial activity, and altered computer records. The investigation attributed more than 80% of reported turnover in each year from 1992 to the end of 1999 to phony transactions. Carlton Cushnie, Versailles’s chairman and chief executive, was reported to have made approximately £29 million from selling shares before the insolvency. Cushnie and finance director Frederick Clough surrendered to the Metropolitan Police Fraud Squad and faced fraudulent-trading charges under section 458 of the Companies Act 1985. Clough’s personal assistant, Lorraine Jones, was also charged with aiding, abetting, counselling, or procuring the alleged fraudulent trading. The available reference material does not provide sufficient information to state the final judicial outcomes. The failed British company is distinct from Versailles Group Ltd., a Boston-based M&A boutique founded by Donald Grava in January 1987. That separate firm was not affiliated with Versailles Group plc. Following receivership, the British Versailles Group ceased to operate as an active listed brand.

• 2000

  Administrative receivership and fraud investigation

  [2]Serious Fraud Officesfo.gov.uk

  Versailles entered administrative receivership, and the Serious Fraud Office investigated alleged fictitious transactions and accounting fraud.

• 1999

  Share trading suspended

  [1]Versailles Groupen.wikipedia.org

  Trading in Versailles shares was suspended in December as the company’s financial position and reported transactions came under scrutiny.

• 1997

  Transfer to the London Stock Exchange main market

  [1]Versailles Groupen.wikipedia.org

  The company transferred from AIM to the main market of the London Stock Exchange in October 1997.

• 1995

  Admission to the Alternative Investment Market

  [1]Versailles Groupen.wikipedia.org

  Versailles was listed on the Alternative Investment Market in September 1995.

• 1990

  Versailles Group plc incorporated

  [1]Versailles Groupen.wikipedia.org

  The British company was incorporated and began developing a specialist trade-finance business serving companies with weak or limited credit profiles.

A specialist alternative-finance provider for businesses unable to secure conventional bank funding, positioned around rapid and flexible trade-finance structures rather than ordinary secured lending.

• Commercial finance · 1990

  Trade finance

  Versailles’s principal activity was trade finance for companies that struggled to obtain conventional bank credit. Transactions were documented as the purchase and sale of goods or raw materials, but their economic purpose was to provide customers with funds for procurement and subsequent sales. The company charged high interest and invoice-related administration fees. The model offered liquidity to higher-risk borrowers, but the later investigation alleged that a large proportion of the reported trading activity was fictitious.

• Alternative finance · 1990

  Mezzanine and gap finance

  The company was described as being engaged in mezzanine lending and gap finance. These forms of funding supplied capital where ordinary senior lending did not fully meet a client’s needs or where the borrower could not readily access bank finance. Versailles used commercially structured transactions to provide this additional funding, generating returns through interest and fees.

• 2000

  Fraudulent trading and collapse

  After the company entered receivership, investigators examined an approximately £100 million discrepancy in its accounts, alleged fictitious trades, forged documents, money movements intended to simulate business activity, and altered computer records. The investigation reportedly found that more than 80% of turnover in each year from 1992 through 1999 arose from phony transactions.

  Source

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• 2000

  Receivership following alleged fraudOther

  Background

  The company’s shares had been suspended, and investigators identified alleged irregularities in its accounts and transaction records.

  Action taken

  Versailles was placed in administrative receivership in early 2000, while criminal investigations proceeded.

  Aftermath

  The company ceased operating as an active listed finance business and faced reported bank debts exceeding £70 million.

  Reported bank debt. More than £70 million (At the time of the 2000 collapse)

  Source

• 1997

  Move to the London Stock Exchange main marketStrategy

  Background

  Following its AIM listing and reported expansion, Versailles pursued a higher-profile main-market listing.

  Action taken

  The company transferred to the main market of the London Stock Exchange in October 1997.

  Aftermath

  Versailles continued to report strong growth until its shares were suspended in December 1999.

  Source

• 1995

  Public listing on AIMStrategy

  Background

  Versailles was expanding its alternative trade-finance business and sought access to public capital markets.

  Action taken

  The company listed on the Alternative Investment Market in September 1995.

  Aftermath

  The listing preceded a period of rapid reported growth and a later move to the London Stock Exchange main market.

  Source

1. 1Versailles Groupen.wikipedia.org
2. 2Serious Fraud Officesfo.gov.uk