The investigation found that Cost Reduction Services (2010) Ltd ran two types of businesses:
· a debt and expenditure review for businesses and individuals, which claimed to save clients between £500 and £1,500 per month and for which they were charged £3,585, and
· the “Easyearn Franchise” where clients bought debt and expenditure review franchises for £15,000 per territory with the promise of a return of £46,000 a year, generated by the fees from the reviews, without requiring any effort on their part.
Some franchisees were also guaranteed their money back in 50 or 100 days if the scheme was unsuccessful. However, investigators discovered that franchisees were misled by the company’s website and other information placed on the Internet, which included false testimonials and unrealistic earnings forecasts of up to £100,000 per year.
Investigators also found that only 13 clients signed up for the review service between July 2010 and January 2011, generating revenue of just £38,780 and that only five of 20 franchisees earned anything at all from their investment, with none of the money back guarantees having been honoured.
In contrast, the company generated £357,500 in franchisee fees, of which at least £71,000 was expended for the personal benefit of its sole director, who received a further £34,000 in salary, expenses and commission, including £14,000 paid one week before he caused the company to cease trading. A further £158,000 took the form of unexplained cash withdrawals and unreceipted debit card expenditure.
Cost Reduction Services (UK & NI) Ltd was incorporated with the intention of carrying on the same business and used the same misleading client testimonials on its website. However, Investigators found that it had only been involved in limited activity.
Welcoming the Court’s judgment Company Investigations Supervisor Scott Crighton said:
“This should send a clear and simple message that The Insolvency Service will take action against unscrupulous companies and ensure that those who run companies in this way do not get away with these sorts of practices”.
Notes to Editors
1. Cost Reduction Services (2010) Limited was incorporated on 16 April 2010, whilst Cost Reduction Services (UK & NI) Limited was incorporated on 26 April 2011. Both companies had their registered offices at c/o Henderson Loggie, 90 Mitchell Street, Glasgow, Scotland.
2. Both petition were presented on 20 October 2011 under s124A of the Insolvency Act 1986 and both companies were wound up by the Court on 12 January 2012.
3 Company Investigations (North), part of the Insolvency Service, carries out confidential enquiries on behalf of the Secretary of State for Business, Innovation & Skills (“BIS”).
4. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice. Further information about the work of The Insolvency Service is available from www.bis.gov.uk/insolvency
5. All public enquiries concerning the affairs of the company should be made to the Interim Liquidator: Bryan Alan Jackson, PKF (UK) LLP, 78 Carlton Place, Glasgow, G5 9TH.
6. Further information about the work of The Insolvency Service is available from www.insolvency.gov.uk
7. Media Enquiries should be directed to: Ade Daramy, Press Officer, on 020 7596 6187.