Business partner cheated?
It seems everyone has heard of people cheating on their business partners. I was part of a company, called Holland Corporate Ltd, where that was the case. Although it took almost three years, the person has been found guilty of various breeches of law and liable for around $1.2m. For the benefit of anyone in a similar situation, here is what we found and what we did about it.
Holland Corporate originally had four partners, with one being the “rainmaker” and the others having expertise to carry out the services being offered. We established the company and website, and pretty soon had a number of engagements underway. We all agreed that any legacy work would take its course and self-extinguish as more business was brought in.
Over the next two years or so, we did have some business come in. but not the level expected. In fact, most of the business was from the partners other than the “rainmaker”. We continually tried to find out why the person, a director of the company, was not getting traction, but were assured that he was taking time to get established. He eventually got more aggressive, insisting that he was not going to pressure his contacts. I believe that aggression was the second sign, behind the lack of business. The person began to be quite distracted in conversations, making vague statements and promises, and disappearing without explanation.
In order to raise our profile we looked at LinkedIn to enhance our profiles. We discovered that our rainmaker was listed as a director in two competing businesses. On confronting him with this, he got very aggressive, insisting that he would not be interrogated.
The remaining directors and I felt that in fact the rainmaker did owe us an explanation. We decided we needed to run an investigation into what had been happening, and we would start by checking the company records on email exchanges made by the errant director. We informed him that we would be carrying out an investigation and asked him to co-operate. We were ignored.
The investigation quickly established extensive dealings outside our knowledge or control. I made up a list of 23 questions seeking explanations. These included apparent dealings and engagements in our name and without our knowledge. More worryingly there appeared to be a case of the person receiving payment to an account he controlled, but for an engagement in our name. On asking about this we were given no substantive answer, but a letter stating that the person felt aggrieved by our lack of trust.
We then engaged a law firm to begin proceedings. Our investigation continued as we had the benefit of discovery and interrogatories. Although the discovery proved little that we did not know, it was useful for providing much detail on what we did know.
We eventually proved to the High Court’s satisfaction that our fellow director had directed hundreds of thousands of dollars to accounts that he controlled, and that he had re-directed business opportunities away from the company that he was a director of. Holland Corporate was awarded judgment in the amount of around $1.2m.
We have been fortunate to survive a significant corporate fraud and remain in business (without our former partner of course). It helped a lot that one of the directors, Michael Kyriak was also a practicing solicitor and was able assist us navigate the long and often difficult legal process to achieve a just outcome. Others are not so lucky though and there is a real cost to white collar crime.