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Bank of Scotland loses £2M in failed golf club lease deal

By Adrian Goldberg - Radio 4, The Report

Taxpayer-funded Bank of Scotland has written-off more than £2m ($3m) after being caught up in a failed leasing deal, a BBC investigation has found.

The bank was owed money for equipment leases sold to British golf clubs by Elumina, a business run by a previously disqualified company director.

Many former Elumina customers are also thousands of pounds out of pocket.

Bank of Scotland insists it is not at fault but critics demand improved regulation in the selling of leases.

Elumina persuaded more than 100 golf clubs across the UK and Ireland to install sat-nav style GPS screens into the their motorised golf buggies.

The screens measured the distance to the next hole, identified hazards and allowed golfers to order food and drink while they were on the course.

Elumina's sales reps told customers that the rental cost of the GPS units would be offset by on-screen advertising sold through another company, GP Ads Ltd.

Andrew Smith from the Whitehill Golf Club in Stevenage, Hertfordshire thought it seemed like a good deal.

"It was £2,600 ($4,000) per month and we were getting in £2,300 ($3,520) advertising per month. So the difference was £300," he told BBC Radio 4's The Report.

"Over 20 buggies I thought it was good value as it was only costing us £15 per buggy, per month."

But within a few months the advertising payments from GP Ads became less frequent and eventually dried up altogether.

That left customers, such as Whitehill Gold Club, owing thousands of pounds on their leases but with no means of recouping the cost.

"We were basically paying the monthly lease of £2,600 and not getting anything back in return, so suddenly you multiply that by how many months left on the lease.

"We've lost about £35,000 ($53,700) and an awful lot of time and energy as well, which can't be costed," Mr Smith said.

More than 100 other golf clubs, who signed up between April 2005 and December 2007, have been similarly affected.

When GP Ads Ltd went into liquidation in 2008, it left the golf clubs exposed to millions of pounds worth of liabilities for the leases, without any income stream to offset the expense.

Regulation 'too weak'

Solicitor Patrick Battersby, who represents 15 of the affected clubs, estimates that his clients are more than £1m ($1.5m) out of pocket.

He argues that regulation of the leasing industry is too weak and leaves disgruntled customers with little means of redress.

"It strikes me as unsatisfactory that when people who enter into leasing arrangements, such as occurred here, did not have any regulator that they could turn to, to ask for assistance," says Mr Battersby.

"We as solicitors, for example, have a very good regulator who, if you have any complaints about a solicitor, you can go to and get immediate redress.

"Perhaps that's something that the leasing industry should be looking at."

Other observers of the Elumina deal are critical of Shire Leasing, one of the industry's biggest brokers, who helped finance the importation of the US made golf buggy screens.

They question whether it performed adequate due diligence on Elumina's owner Kevin Clarke.

Mr Clarke, who has declined to comment on the case, was disqualified as a company director for seven years in 2002 after publishing inaccurate and distorted accounts.

In a statement to BBC Radio 4's The Report, Shire Leasing said:

"Kevin Clarke was known to Shire from a previous successful trading relationship. Shire did carry out due diligence as well as attending joint meetings with Kevin Clarke... and the Bank of Scotland."

Shire had sold-on the Elumina leases onto the part-nationalised Bank of Scotland - part of the Lloyds-TSB group.

Problem 'very widespread'

Bank of Scotland confirmed to the BBC that they have now written off £2m ($3m) in toxic assets accrued as a result of the Elumina deal.

"The vast majority of these agreements were assigned to us by Shire Leasing plc.

"Bank of Scotland Equipment Finance was not in any way connected to advertising deals with individual golf clubs," a spokesman for the Bank of Scotland said.

This case follows recent revelations, not linked to Elumina, that British schools could be exposed to millions of pounds of liabilities as a result of a computer leasing scam.

The BBC's 5 live Investigates programme has also revealed that many small UK businesses have lost thousands of pounds as a result of fraudulent leasing of telephone equipment.

Business journalist and leasing industry expert Brendan Malkin warns that problems in the leasing industry are "very widespread" and have got worse as a result of the recession.

"It is shocking that the UK high street banks have been caught out in these leasing cases, and as a result have had to write-off millions of pounds of taxpayers' money," says Mr Malkin.

Justin Rose of the trade organisation The Finance and Leasing Association admitted he was concerned about the BBC's findings, but insisted that there is already sufficient regulation of the leasing industry.

"The number of problems relative to the total size of the use of asset finance is remarkably small," he said.

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