Versailles never generated a profit in nine years, court told

Versailles, the trade finance company which collapsed in 2000 owing £70m to its banks, made no money whatsoever from the time it was founded nine years earlier, a court heard yesterday.

Despite being a very popular stock after floating in the late 1990s, favoured by both investors and City analysts, Versailles' main business never generated profits, according to its former finance director, Fred Clough.

Clough, who is giving evidence against his former business partner, Carl Cushnie, who founded Versailles, said: "From the very start it was apparent that Versailles Trade Finance was losing money."

Clough has pleaded guilty to attempting to disguise the situation throughout the 1990s by falsifying Versailles' accounts. He has become the star witness for the prosecution in the case, being heard at Southwark Crown Court.

Mr Cushnie and Lorraine Jones, who held the post of accounts controller at Versailles, are accused of defrauding the company's shareholders and creditors. They deny the charge.

Versailles, which provided bridging loans to small companies, collapsed in 2000, having fraudulently inflated its turnover by more than £700m, according to the Serious Fraud Office, which is bringing the case.

There was a "black hole" in Versailles' accounts, Clough said. This was the difference between the profits the company was recording to the outside world, and the true picture of heavy losses, due to the fact that Versailles was doing far less business than it was making out. Mr Cushnie wanted to plug the black hole by floating Versailles, first on the junior AIM market in 1995 and then on the main market, according to Clough.

Mr Cushnie's view was that by floating, "we would be in a better position to sell shares to attempt to fill the black hole," Clough said. He said he had had concerns about encouraging private individuals to invest, as "the shares in fact were valueless".

Ms Jones, who was employed as an assistant to Clough, was sometimes asked to write company cheques to entities that are believed to have been controlled by Mr Cushnie, the court heard.

Mr Cushnie has been accused of siphoning off £37m from Versailles, whereas Clough is alleged to have stolen £19m, none of which has been recovered.