Was AVRO trading illegally or fraudulently for the last 2+ years? Was it like a Ponzi Scheme?

egyptiancotton

New article by The Times but it's paywalled: https://www.thetimes.co.uk/article/energy-firms-need-closer-scrutiny-rjk83v3w9

Looks like a juicy article. 

inspectorperez

lloydyyy said:

New article by The Times but it's paywalled: https://www.thetimes.co.uk/article/energy-firms-need-closer-scrutiny-rjk83v3w9

Looks like a juicy article. 

Just imagine a young former amateur footballer coming home and saying to his missus - "I've had a good idea, think I'll shorten our company's accounting period by one day"!!

Who was pulling Jake's strings?

Will no doubt come out in the wash eventually!!

oliverbrown

inspectorperez said:

Will no doubt come out in the wash eventually!!

Probably, by which time everyone will be focussed on the next crisis and won't even care.

egyptiancotton

The joy of a limited company - make millions without having to pay it back. I hope that changes. 

Where the hell was Ofgem? They're there to regulate, not sit back and watch from the sidelines!

ihatetrump

AVRO Energy extended it's year end to the maximum allowed by law (18 months) on 10/09/2019 so that it could buy more time to file it's (then ) 2018 accounts - then filed the new 20/06/2019 accounts on the very last day (30/06/20). Then 2 days before the 2020 accounts were due, it shortened its' accounting period by 1 day to buy an extra 3 months to file.  Then 6 days before it was due to file it ceased trading.

Northing short of evading and concealing the truth.

The sums of money involved are potentially huge, hopefully the SFO will get involved and stop letting OFGEM !!!!!! foot around from the sidelines as @lloydyyy so eloquently puts it!

MWT

With due respect to those on this thread who are accountants, the most likely source of advice for the strategic network of companies, and the tactics of changing year-end dates will be accountants and lawyers.

These sorts of corporate structures are quite normal for tax efficiency, which is of course perfectly legal, but it doesn’t mean that it wasn’t abused to extract cash or other assets, and that is something the administrators will be looking into now…

Delburn

Jake and Phil Brown sold Avro Energy Limited to Avro Group Limited on 13/8/19.

I wonder what amount Avro Group paid them for their shares.

I wonder how Avro Group could afford such a purchase with only £100 of share capital.

What is known is that Avro Energy had cash inflows from customer credit balances and had a practice of making interest free and unsecured loans to related companies.

It is not known whether Avro Energy made any loans to the (prospective) parent company but irrespective of this, loans to parent companies need to more tightly restricted as they often have zero value to the subsidiary and it is questionable whether the directors who sign off such loans can claim to be acting in the best interest of the subsidiary.

Whilst such a transaction may be completely lawful, a person making such a transaction may be keen to delay further scrutiny. 

ihatetrump

@MWT

No disrespect taken - I am one of those accountants that you refer to, and your comments are well taken. Although I am not a Tax Accountant, I have never in 40 years come across a valid tax reason for shortening an accounting period by one day. You might find the following interesting: with credit to:

https://www.redflagalert.com/articles/risk/why-a-change-in-accounting-period-is-a-red-flag-to-investigate

In October 2019, Toto Energy Limited was the 17th ‘challenger’ energy supplier to go out of business. Toto published dire financial statements up to April 2017, but then extended the following financial year by six months and then shortened their reporting period by a day, buying a further three months for filing. 

Creditors weren’t able to see any accounts for the 18 months following the poor results and before administration; this resulted in a total of £15.9m being owed to 126 unsecured UK creditors. 

See: https://find-and-update.company-information.service.gov.uk/company/09256482/filing-history

This is almost the same MO that AVRO have adopted - Toto's administration process is still ongoing 2 years later, nowhere near as large as AVRO, but with the outcome expected be the same - one that costs the industry (and therefore the consumer) millions, probably with a few 0's on the end for AVRO.

Yes, of course the accountants and lawyers will sort it out, they always do - at anything between typically £325 and £690 per hour - all paid for out of high energy costs in the future.

ihatetrump

There's been some discussion on the similarities of AVRO to a Ponzi Scheme.

Here's a clear definition of a Ponzi or Pyramid Scheme (Investopedia):

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers.

Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn't enough money to go around. At that point, the schemes unravel.

AVRO enticed customers offering cheaper energy costs  as per their website (pre closure):

Avro provides consumers with low priced energy in addition to simplicity with your supplier — this is achieved through maintaining a highly efficient business that keeps overheads to a minimum and is restrictive in the level of marketing commissioned.

Naturally customers would be enticed through cheaper energy - isn't that what everyone wants?

Problem is (all referenced to their last filed accounts):

The cost of energy was 99.927% on £390M of sales.
That only left them with £283k to pay overheads.

What enabled them to stay afloat and continue trading was customer credit balances which averaged £77.74 for ever one of their 590,000 customers - it gave them a £45.9M buffer of cash and allowed them pretty much to do what they (the Directors/Shareholders) wanted. This included paying themselves £2,250,000 for marketing services through their sham company even though they said their business 'is restrictive in the level of marketing commissioned.' It also included lending their own non-energy related businesses interest free loans of over £831,000.

This was a Ponzi scheme in all but name, they enticed customers with the attraction of artificially low and unsustainable energy costs - took cash up front in the form of advance payments and then used the cash to fund themselves and their businesses (and most likely some of their fellow cronies in the sector), all the while knowing that the advance customer payments would be protected by OFGEM and the burden of eventual repayment would fall on the sector as a whole through increased support levies and higher energy costs. 

What a Scam.......

oliverbrown

ihatetrump said:

This was a Ponzi scheme in all but name, they enticed customers

Not a Ponzi scheme. In a Ponzi scheme, the victims are investors, not customers.