DJM - Statement of Affairs released

[Gibbo675]

8 hours ago, Legend said:

I am a Chartered Accountant but have never seen or been involved in any crowdfunding schemes and so don't know the specific accounting requirements for it .  However I am very surprised that crowdfunders don't appear anywhere in this statement . That to me is basic.   At the receipt of money the basic accounting transaction would be Debit Cash , Credit Liability to Crowdfunder .   The company can then go on to do what it wants with the cash eg spend money on CADS , tooling etc , the money is either expensed or its an asset (eg tooling).   However the fundamental point I'm getting at is that the initial record remains ie Credit Liability to Crowdfunders , so I would have expected an amount made up of all the £30 deposits for 92s and whetever it was for APTS (£250?) to be shown in the statement . And there should be a list by name of who paid deposits .    And now I think back to the somewhat chaotic requests for deposits, paypal  refunds etc and wonder if all these receipts have been properly accounted for .   Crowdfunding was surely fundamental to the DJM business, I would have expected basic enquiries to reveal that , so where is the record of all monies received?  I think CG really need to investigate more. At the most basic level they may need to go back to bank statements to see what money was received and figure out where it came from .     This might be an Initial Statement of Affairs but , at best its incomplete, there must be more to come.

 

Hi Legend,

 

I have have a good read of all of the posts made so far and beyond to page fiver and your comment stood out in that:

1. Is there no specific legislation governing crowd funding projects.
2. How are people that deposit funds into such schemes listed in the accounts of businesses that receive such funds ?
3. Would it be that the business may list them as they please ?

 

I am in no way an accountant or have any professional financial knowledge which is why I ask.

 

Gibbo.

[Colin_McLeod]

2 hours ago, melmoth said:

 

Yes, but conversely, if someone stretches their budget for a "once in a lifetime" model then they are perhaps likely to have to cut back on other hobby related expenditure in order to afford it, and it's that cash that is lost. All hypothetical, I know.

 

 

 

I've said this before. If the APT had been made, the "once in a lifetime" purchase would have been £1k "lost" to other models.  Thanks to the liquidation, there is now £750 that is "not lost".

 

 

 

PS

I'm obviously not saying the liquidation is a good thing. But thank goodness it happened before stages 2, 3 and 4 payments were made.  

[GWR-fan]

The liquidators have a duty of care to ensure that all the financial facts of a company are investigated to reach a true appraisal of the company's books.  However, if there are insufficient funds to even reimburse the liquidator fees then how diligent would a liquidator be in their investigations knowing that they would be out of pocket to fully investigate a company.  I am speaking generically here.

[Tricky-CRS]

The 50k directors loan could be made up of a lot smallish cash advances over a period of time, hours worked unpaid, unpaid expenses (fuel, flights, hotels, post, envelopes, Internet, phone, heating, drinks, food, exhibition stand rent, flyers etc), could slowly build up.

[AY Mod]

34 minutes ago, Tricky-CRS said:

The 50k directors loan could be made up of a lot smallish cash advances over a period of time, hours worked unpaid, unpaid expenses (fuel, flights, hotels, post, envelopes, Internet, phone, heating, drinks, food, exhibition stand rent, flyers etc), could slowly build up.

 

All totalling a nice round number, a bit like the cash at bank + petty cash tin.

[Tricky-CRS]

It is a possibility, also depends on the hourly rate used, also once writing was on the wall he could have round it up with a charge.

[Colin_McLeod]

1 hour ago, GWR-fan said:

The liquidators have a duty of care to ensure that all the financial facts of a company are investigated to reach a true appraisal of the company's books.  However, if there are insufficient funds to even reimburse the liquidator fees then how diligent would a liquidator be in their investigations knowing that they would be out of pocket to fully investigate a company.  I am speaking generically here.

 

Thats part of being a liquidator.

 

Also if wrongdoing of a criminal nature is suspected then police can get involved and that provides more resources for that aspect of the investigation.

Edited June 25, 2019 by Colin_McLeod
Clarity

[rab]

6 hours ago, njee20 said:

He definitely claimed to have an accountant at one point - the whole saga with his late accounts last year made mention of them.

Although not directly affected by this saga, having followed the thread with interest, it would seem that a lot of claims were made which are now proving to be, shall we say, not quite as claimed

 

 

[njee20]

Well yes, I couldn’t possibly comment on the provenance of any claims!

[Widnes Model Centre]

1 hour ago, Tricky-CRS said:

The 50k directors loan could be made up of a lot smallish cash advances over a period of time, hours worked unpaid, unpaid expenses (fuel, flights, hotels, post, envelopes, Internet, phone, heating, drinks, food, exhibition stand rent, flyers etc), could slowly build up.

 

You might have missed for example.... company car,  P.A , personal pension contributions, corporate entertainment, butties at Crewe. Soon adds up. As AY says then go through your old jacket and jeans and Voila, £50,000. Put the rest in your jeans for next time. 

 

Easily done. Off to check my pockets see if we can improve our company finances.

[PMP]

In terms of identifying if any CF payments were made to ‘the company’ or an individual, I’d expect order confirmation to come from an email address associated with the company, eg sales@xyz dot com, or an address on company paperwork or materials or websites. If it’s via random name and/or numbers@email company dot com, perhaps that may indicate its external to the company structure.

[Richard E]

My confirmation invoice/receipt for a King came from a hotmail account ...

[Hyper Aus]

Well my claim against the company is registered, which only happened yesterday.

 

So I can't see how the statement can be up to date at all.

[Colin_McLeod]

Perhaps this thread and some of the other threads could be sent to the liquidators.

 

I know it won't improve what is paid out but it may give some pointers to the investigation.

[luke_stevens]

8 hours ago, spikey said:

Oh! Tinned Gagh! 

 

https://intl.startrek.com/database_article/gagh

Edited June 25, 2019 by luke_stevens
correction

[Persephone]

Before I retired I worked as a senior investigator tasked to investigate serious internal and contractual fraud within Central Government. I've got a degree in financial and economic crime. DJM as a business ticked enough boxes in the indicators that would trigger a formal investigation. What's been revealed in these statements would only reinforce the decision to investigate. 

Edited June 25, 2019 by Persephone

[LBRJ]

[Damo666]

13 hours ago, chris p bacon said:

The problem with accounts like these are that they only show the state of affairs on the final day.  It's possible that the £50,000 director input was money put in right at the start to enable the J94 to be produced. It doesn't explain why he needed to increase borrowing from FC when the projects were 'self funded' nor does it explain why he was owing money to Hattons when as a seller of products it should be the other way around.  Carrying that much debt with no new models for some times and nothing to be received for at least 9 months, it was fairly obvious that the company was unsustainable and had been for some time.  Quite what he said when he applied to FC for a loan is anyones guess but I doubt it was the truth or they wouldn't have lent.

 

What we all would want to see is where the income from the 'Crowdfunding' went, just what sort of day to day expenses were soaking this up as there is none left now from the J94, 71 plus the other projects for 3rd parties.    

Or was it really a case of the projects never really having enough sponsors behind them to get off the ground.  I suspect the latter and DJM were gambling that they would pick up more as the projects progressed. 

It's always easy to gamble with other peoples money.

 

I made a decision some time ago not to get involved in contributing to the various DJM threads on 'what ifs' and 'here's my opinion' following its demise, even though I am/was a crowd funder. It'll all come out in the wash whether I state my opinions or not, and my opinions wont change any of the facts.

 

However, this part of the statement of affairs has really made me angry, if it's proven to be the case.

The development of the Class 92 was to be from crowd funding. We, the crowdfunders, were, in DJs own words, investors.

 

Why on earth then were 3rd party monies obtained, from sources like Funding Circle? Hattons I'll leave aside, as this may be a large deposit by them to seed the project just like us. But Funding Circle is a business, looking for returns on their investments. If that is the case, then either the financial benefits that Funding Circle expected to get would have to come out of DJM profits (slippy slope) or the price of the Class 92 / APT was unrealistic and needed supplementing.

 

Either way, borrowing money would appear to demonstrate a degree of naivety or management negligence. Hence the position we are now all in.

[4firstimes]

This topic must be one of the most interesting subjects on the forum, and whilst i feel sorry for those modellers who have lost out by the business model of this concern; there has been a wealth of information to help modellers if the situation ever arises again with a future organisation. Whatever is your view, i feel the direction in the future has changed significantly when other enterprises use similar schemes to finance the development of cherished models which the major players in this market may not wish to develop in their product range. The challenge of how to raise funds to develop these is certainly one which i feel is going to be more difficult and require closer scrutiny before we part with our monies as deposits. The lessons in the demise of this concern for whatever reason , and the analysis of the findings of the process following the voluntary liquidation clearly show the world of railway modelling was many capital risks from which the main stream manufactures have the experience. The discussion through this forum has been interesting and whilst I withdrew from business with this concern when the Class 17 was cancelled, if the facts held true to the reason given, this market is one not designed for the small players. On a lighter note a certain railway pioneer of humble beginnings rose to become the railway King before his world crashed away. Whilst this concern is not in the same same league, however the ‘Talk the talk’ and there was the interest for we modellers to make deposits for models we know know could not be delivered. The business model with is failing will certainly provide lessons for the future and we modellers more cautious in how we spend our money . The knowledge provided by those modellers who have lost their deposits I feel sorry for, but in the trauma of the recents events you have provided a wealth of information , and you willingness to share is of benefit to the hobby as a whole.

 

[The Stationmaster]

23 minutes ago, Damo666 said:

I made a decision some time ago not to get involved in contributing to the various DJM threads on 'what ifs' and 'here's my opinion' following its demise, even though I am/was a crowd funder. It'll all come out in the wash whether I state my opinions or not, and my opinions wont change any of the facts.

 

However, this part of the statement of affairs has really made me angry, if it's proven to be the case.

The development of the Class 92 was to be from crowd funding. We, the crowdfunders, were, in DJs own words, investors.

 

Why on earth then were 3rd party monies obtained, from sources like Funding Circle? Hattons I'll leave aside, as this may be a large deposit by them to seed the project just like us. But Funding Circle is a business, looking for returns on their investments. If that is the case, then either the financial benefits that Funding Circle expected to get would have to come out of DJM profits (slippy slope) or the price of the Class 92 / APT was unrealistic and needed supplementing.

 

Either way, borrowing money would appear to demonstrate a degree of naivety or management negligence. Hence the position we are now all in.

The simple fact - once again - is that we don't know.  Don't forget that DJ was talking of a couple of upcoming N gauge wagon releases this year so he might have gone to peer-to-peer lending to finance them.   Whatever the financial entanglements have been a look at the numbers shows that only c.33% of the creditors total amount he has entered is down to Funding circle; almost 50% is (not surprisingly in my view) down to him.  

 

If you look at the creditors against total realisable assets there is an irreconcilable  deficit in the case of money he is claiming before you add any other creditors.  And don't don't forget this is a creditors voluntary liquidation which means he wasn't forced into liquidation by any other creditors - such as Funding Circle or Hattons - but decided to do so himself  (although it might well be the case that repayment to one of the other creditors was looming).  If anybody ever manages to untangle what money went where as it came in the story could be very different from your comment about borrowing money from FC because he was, in effect, also borrowing money from crowdfunders/deposit payers and no doubt on far more advantageous terms than even a peer-to-peer loan would offer.

[ian]

Applying a bit of DJM logic to the APT:

 

The first payment was to fund the scanning and research - that happened so those funders have got their money's worth and are no longer creditors.

The second payment would have been to fund tooling - that was never requested and there is no tooling.

The other payments were to produce the models - ditto.

 

 

[chris p bacon]

27 minutes ago, ian said:

Applying a bit of DJM logic

 

I've yet to see any. 

[Willie Whizz]

I do not see where the idea of "crowdfunders" being "investors" comes from, except as a piece of very loose terminology by Mr Jones, in which case he clearly didn't know what he was talking about. 

• If you were properly an "investor" in a company you would expect to receive a share certificate (or, perhaps, some form of bond or loan note).  You would now be at the very end of the queue for payouts.
• If you were simply ordering a specific product and paying up-front in installments, and those installments were meant to go towards the development and production of the product, then - whatever fancy label is attached to it these days - unless there is something explicit in the contract to suggest otherwise (e.g. perhaps that your funding would be 'ring-fenced' specifically to that project only)  then you were just a customer and are now entitled to claim as an unsecured creditor.  You are slightly higher in the pecking-order, but your chances of getting anything back are, in such a situation, minimal.
• in the days when I worked for one of the major High Street Banks, nearly 20 years ago, we were always very clear with Business Customers that, whilst we wanted and valued a close relationship with them, we were emphatically not "investors" in their business, just "lenders" to it.  Unless the Bank had some form of security for overdrafts or loans it too was an unsecured creditor.  The most common form of security offered by a small company business that didn't own its own trading premises was a 'Director's Guarantee'.  Since an unsupported Guarantee is the easiest security to take but the hardest to realise, it was customary in considering any substantial loan to seek  supporting personal security from the Director(s).  In most cases, the only substantial asset they had was the domestic home; therefore the Bank would commonly ask for a Second Mortgage over the equity in the property.  If there was another party involved in the ownership of that property, they were required to give consent, and offered the chance to take independent legal advice, though back then few did.  These days I imagine the requirements are likely to be more rigourous; therefore if indeed Mr Jones raised funds from a Bank to inject into his company as a 'director's loan' by this route, the status and rights of his 'partner', 'spouse' or whatever at the time such a loan was made are likely to be a relevant issue as to whether the liabilities of the Company can be extended into his personal position.

It may give a certain satisfaction to register with the Liquidator as an unsecured creditor, and thereby to add to the weight of the case against Mr Jones and damn his future as a credible businessman (and as a past 'victim' of the activities of "Sir" Fred Goodwin as they affected his staff and shareholders I can vouch for that feeling of satisfaction when I took my own very small part in the subsequent legal action) - but at the end of the day, don't expect any actual money back.  You were not an "investor" in DJ Models.

[Paul B]

1 hour ago, ian said:

Applying a bit of DJM logic to the APT:

 

The first payment was to fund the scanning and research - that happened so those funders have got their money's worth and are no longer creditors.

The second payment would have been to fund tooling - that was never requested and there is no tooling.

The other payments were to produce the models - ditto.

 

 

 

In terms of the logic I know where you are coming from. 

 

If I get a chance later this morning, I’ll post my take on all of this.  Generally my view is whilst there may have been stage payments to fund the various stages of a project, the aim was to produce a model in its entirety not just the various steps in isolation. I’m sure most would agree.

Edited June 26, 2019 by Paul B

[maico]

4 hours ago, Richard E said:

My confirmation invoice/receipt for a King came from a hotmail account ...

 

Without the DJM vat number on it ?

 

If so, it's pretty clear these payments weren't going through the business accounts but into what might be perilously close to a matrix scheme

https://en.wikipedia.org/wiki/Matrix_scheme

 

 

Edited June 26, 2019 by maico