Failed printer accused of 'invoicing fraud'

The Edinburgh-based company fell into the hands of administrators in December and was quickly bought by rival firm Stewarts of Edinburgh. But it was put into liquidation a week later as its new owners uncovered "irregularities" in its accounts.

All of the firm's 135 employees lost their jobs following the liquidation.

Documents obtained by The Scotsman show that the company is now being investigated by its invoice finance company, Cattles Invoice Finance, for debts of up to 600,000 relating to invoices that were submitted before work was completed.

The practice, known as "pre-invoicing", if proved, might be seen as an attempt to defraud Cattles Invoice Finance.

Correspondence between the Cattles Invoice Finance regional managing director, Richard Waldman, and former Summerhall directors Garry Ward and George Pryde, warns that the invoicing company is aware of some irregularities relating to the firms' invoices.

In a letter, sent to Pryde on 23 December, Waldman claimed that Summerhall owed Cattles 1.05 million at the time the company fell into administration.

He said: "As you are aware, there has been a large element of fraud in the management of the facility with us and with this, it is very likely that you will need to indemnify us for a fair proportion of the above debt."

An e-mail sent to Ward and Pryde by Waldman six days later, added: "I have spent a lot of time over the last few days going through the Excel report … and this suggests that there is over 600k's worth of WIP (work in progress]/pre-invoicing/fraudulent invoicing and uncollectable debt on the ledger."

Contacted by The Scotsman yesterday, Waldman refused to comment on the correspondence, saying: "We are working on an investigation into Summerhall and are still getting to the bottom of what the situation is."

The e-mail also suggested that Pryde could recover some of the money owed to Cattles by completing work at another printing business, Dorset-based Blackmore, of which he was a director until last month and is still a shareholder.

In a separate set of documents sent to clients and creditors this month, administrator Zolfo Cooper revealed that Summerhall – which boasted financial services firms such as Standard Life and the prestigious Gleneagles Hotel among its client list – collapsed, owing 7m to a variety of creditors.

But the documents show the firm's assets were not worth enough to be able to repay any of the creditors – meaning none, including HM Revenue and Customs (HMRC), would be paid what they are owed.

The 2.3m of pay-as-you-earn tax owed to the HMRC is more than Summerhall's entire wage bill for 2007, the latest accounts filed with Companies House show. A further 65,000 is owed to HMRC in VAT.

Ron Barrie, spokesman for the HMRC, refused to comment on the specific Summerhall case, but said: "We would chase debts, but if there was a reasonable option in entering into a time to pay agreement over an agreed period, we would do so."

Pryde, who worked in the business for more than 40 years, last night said he was working with Cattles to recover cash from any unpaid invoices to pay off its "ledger" – the debt Summerhall owed to the invoice financing firm.

But he refused to comment on whether pre-invoicing was carried out at Summerhall, adding that he had not received the e-mail and letter from Cattles as he had left the company before they were sent.

He added: "If it (pre-invoicing] did go on – and I'm neither saying it did or it didn't – if they collect their ledger that will be the end of the conversation.

"To my knowledge, I could not say (if it went on] because I was not involved with day to day invoicing." Pryde continued: "The Revenue have been incredibly supportive and really tried everything within their remit to help support Summerhall.

"I am sure some would say too supportive in light of the end result. Sadly, we were unable to meet the agreed repayment plan and the Revenue then had no option but to notify us of their intention to wind up the company."

Terry O'Hare, managing director of Stewarts, which passed Summerhall to liquidator French Duncan in January, said: "Whilst refusing to be drawn on the detail of the irregular activities by the previous owners of Summerhall Press Ltd, we do recognise that Summerhall staff and clients have experienced very significant consequences.

"We continue to help clients resolve their invoicing and stock problems."

High risks of pre-payments

AN AGREEMENT with an invoice financing company is standard practice for many small and medium-sized businesses.

Once the business has provided goods or services and invoiced a customer, it can obtain payment of a percentage of the amount due, typically 90 per cent, from the invoice financing company, allowing quicker cash flow until the customer's bill is paid.

This method of billing is often used by companies that are either having a problem with cash flow or have carried out a particularly large and expensive job, which has required a significant outlay.

In the practice of pre-invoicing, companies send the bill to the invoice financing company before the work has been carried out.

The risk to the invoice financier is then high – as it is lending money that may not be paid to the company if the work is not completed.

If a company collapses before it can carry out agreed work, then the bill is never paid, leaving the invoice finance company out of pocket.