The Swithland scams explained

The Leicestershire-based Swithland Motors dealership chain was supported by an intricate web of false accounts, bogus transactions, falsified documents and ingenious scams to deceive bankers, investors, vehicle finance companies and the auditors, Coopers & Lybrand. The company collapsed owing some #15m in November 1993, days after plans for a stock market flotation were abandoned.

Last week, a jury brought convictions for fraudulent trading against two of Swithland’s directors. Former certified accountant David Sharratt, 51, of Thringstone, Leicestershire, was jailed for three and a half years and disqualified from acting as a director for seven years. Founder and chairman John Hayes, 39, was jailed for five years and disqualified for ten.

Prosecuting counsel Stephen Coward QC claimed in his opening remarks: ‘The rot was so deep that every single member of that organisation, however lowly, was sucked in to having to behave dishonestly to keep this sinking ship afloat.’ This is how:

One of the prosecution’s leading witnesses was chief accountant Jillian Adams, who had been instructed by Sharratt to run two sets of accounts.

(Counsel for Sharratt argued in court that she had had an affair with Sharratt, but that he had broken it off. She was lying as an act of revenge, it was claimed, though Adams denied that.) Lloyds Bank was shown the false management accounts and subsequently granted Swithland a u1.5m overdraft.

It breached its credit limit within days.

Shortly before the auditors’ visit, the make, colour and registration details of employees’ cars were fed into Swithland’s computer so that they would appear on the inventory list. Conveniently, the cars were parked on the forecourt.

Cars that had been sold remained on the balance sheet – inflating assets – by keeping the vehicle registration document issued by DVLA, Swansea, in Swithland’s name, rather than giving it to the buyer. If a buyer later noticed and complained, Swithland would ask DVLA to issue a new registration document to the buyer – but would still have the original as ‘evidence’ of ownership. Car rental contracts were fabricated using model and registration details of absent cars – ‘temporarily off site’, the auditors were told.

The debtors in the balance sheet were inflated by showing large sums due from hire purchase companies for cars sold on credit terms. While auditors were told that payments were outstanding for three months, motor industry practice is for payment to be made to the dealer within three days. Swithland claimed that its computer system simply could not prepare a proper debtors list – and Coopers & Lybrand staff were denied access to certain key rooms in Swithland’s main office.

VAT was fiddled by claiming that the total sale price included VAT-free warranties (1,300 cases), overstated payment protection plans (834 cases) or 12-month tax discs rather than the actual six months (2,500-plus).

‘You can imagine the panic,’ prosecuting counsel said as he described the scene just before a visit from Customs & Excise to inspect the records. ‘The documents were a nightmare, just like a snowstorm, Tipp-Ex everywhere.’