Cushnie set up company to receive diverted funds, trial told

Carl Cushnie, the founder of the collapsed corporate lender Versailles, allegedly set up a separate company which siphoned off money from various parts of the business, a court heard yesterday.

Fred Clough, a former business partner of Mr Cushnie who is now giving evidence against him, said he was aware of a company called C Ltd, which he believed was controlled by Mr Cushnie.

C Ltd "was being used to receive funds from certain companies within the Versailles group", Mr Clough told Southwark Crown Court. At one point, £611,000 was paid into C Ltd, the court heard.

Mr Cushnie allegedly stole a total of £37m through the 1990s from Versailles, a trade finance company which was meant to provide bridging loans mainly to small businesses. In reality Versailles grossly inflated the amount of business it appeared to do by falsifying its accounts, Mr Clough claims.

Mr Clough, who has become the star witness for the prosecution, has admitted he conspired to defraud Versailles. He is said to have taken £19m from the company, none of which has been recovered.

Mr Cushnie and Lorraine Jones, an accounts controller, are also accused of defrauding the company's shareholders and creditors, although they deny the charges. Their lawyers have already suggested the two were not aware of the fraud committed on a massive scale by Mr Clough, a trained accountant who was Versailles' finance director.

Mr Clough admitted he attempted to mislead the Department of Trade and Industry by falsifying sales figures after it opened an investigation in 1999 into Versailles' affairs.

Asked what Mr Cushnie had said they should do about the DTI crawling all over the books, Mr Clough said it was to the effect that "we had better try something and anything was better than nothing".

Mr Cushnie was also behind the plan to move part of Versailles to the British Virgin Islands in order to avoid the rigours of being audited in the UK, according to Mr Clough.

The case continues.