Disqualified director’s second jail term for illegally running company

A disqualified director from Birmingham has been jailed for a second time, when an Insolvency Service investigation found he was illegally running a company soon after leaving prison following a five-year sentence for operating a fraudulent financial services company

In September, John Cotton was handed a 14-month prison sentence and a 10-year directorship disqualification at Wolverhampton Crown Court. He was joined at court by Michael Clarke, who was given a 12-month prison term and a five-year directorship disqualification after he had initially pleaded not guilty to assisting Cotton carry out his criminal activities.

The court heard that Cotton had a history of convictions for obtaining credit while bankrupt dating back to 1988 before being jailed for 61 months in July 2011.

His earlier jail sentence arose because he was convicted of running a company with the intention to defraud, and he was also banned from running companies for 15 years. The company in question, called Bradley James Ltd (BJL), took in almost £1m by offering creditors who had already lost money through companies in liquidation a scheme for getting their money back.

BJL would request an upfront payment of between £500 and £3,400, telling creditors it had damaging professional and personal information about the directors of the companies in liquidation which would prompt them to pay up old debts. The company claimed that creditor would expect to get 19.6% of any monies recovered, and said it had a 90% success rate.

In reality, the money was used by Cotton and two others for personal spending; Cotton was also found to have misrepresented himself as an ex-police officer in order to persuade people into the scheme, which never returned any money to subscribers. 

Following his conviction for his involvement in BJL, Cotton left prison in 2014 but, in direct breach of his 15-year directorship disqualification, began illegally managing a company, of which a fellow inmate, Michael Clarke, was the registered director.

The new company, British Airwaves Ltd, manufactured veneer sheets and wood-based panels and was based at an address in Dudley, West Midlands.

Cotton’s illegal activities came to light after two former employees brought forward pay disputes with the company. In their testimonies, the former employees said that Cotton controlled and directed day-to-day affairs of the company. He also used a false name to staff.

One employee had received a letter from Cotton saying that if they continued with the dispute over pay, he would have to put the company into administration. The Insolvency Service said this is something only a registered director could do, indicating that Cotton had control of the company.

The court also heard from British Airwaves’ accountant who confirmed that he would principally deal with John Cotton. One such conversation concerned a large amount of money paid out of the company account to a solicitor.

Cotton told the accountant that the money was being used to pay an outstanding proceeds of crime order from his 2011 conviction. This payment, however, should have been paid out of his personal bank accounts.

Clarke, the registered director, was interviewed by the Official Receiver in June 2017. At the outset of the interview, Clarke said Cotton had given him a recording device to monitor the interview, which he showed the Official Receiver, and a ‘script’ which he was to stick to.

The registered director then explained he had met Cotton in prison and knew he was a banned director. Clarke went onto admit that Cotton controlled all areas of British Airwaves and that he had also forged Clarke’s signature on company accounts and applications for credit.

Glenn Wicks, chief investigator for the Insolvency Service, said: ‘John Cotton may have served his time in prison the first time around, but he still had a 15-year directorship ban hanging over his head, which he wilfully ignored when he began running the manufacturing company.

‘A second prison term was therefore completely justified in order to protect further creditors and employees coming to harm from his illegal activities.

‘While Michael Clarke claimed he was innocent in all of this, the court rightfully dismissed his claims as he had fully co-operated to help John Cotton in setting up the company thinking he would benefit financially.

‘The courts’ decision to hand down significant sentences to both John Cotton and Michael Clarke demonstrates the severity of their actions.’

By Pat Sweet

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