Two Scottish debt management review companies have been wound up in the public interest by Edinburgh’s Court of Session, following an investigation by the Insolvency Service.
The two firms were Cost Reduction Services (2010) Ltd and Cost Reduction Services (UK & NI) Ltd.
The investigation found that Cost Reduction Services (2010) Ltd ran two types of businesses. Firstly, 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.
Secondly, 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.
Meanwhile, he 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.
Scott Crighton, company investigations supervisor, 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.”””