Do Crowdcube have a clue what their companies are up to?

We have just been sent a letter that all shareholders via Crowdcube were sent today at 11.30, informing them that Crowdcube have just heard that East End Manufacturing are closing.

'So What', we hear you say.

Well we reported this closure on the 6th September - so well over a month ago.

What is it that the enormous team of Crowdcube interns do all day in Exeter? Certainly not servicing their investors. How much surfing can you do in week?

So now we have the very odd situation that if you want to know what is really going on with Crowdcube funded businesses, you need to come here to us. Looks like even Crowdcube may have been using our services to inform their East End Manufacturing shareholders!! Should we ban them?

Its time the FCA protected creditors from this abuse

For all you caveat emptors, red in tooth and claw, you 'entrepreneurial' go getters who believe blindly that equity crowdfunding is gggreat. Here's one for you.

When a business goes bust, for whatever reason, you can be pretty sure there will be unpaid creditors - the amount will depend on the scruples of the directors. If these unpaid creditors are a result of a plan that was flawed and funded via a model that is also flawed then something should be done to prevent it's repetition - dont you think? Ignoring the idiots (shareholders) who backed the idea, creditors who may have run thorough credit checks and read news items, should be protected from this abuse.

East End Manufacturing is one such example. 

A recent report from the liquidator, not published yet, shows how flawed this business was. It went from this statement on the Crowdcube blog in May 2016  - 

Our sales topped £1m last year and we are expected to turn a profit for the first time this year, so we are moving in the right direction.

To admitting to the liquidator that by June 2016, the business was in dire trouble; ultimately resulting in its closure last month. You have to say that takes some believing.The Crowdcube projections show YE February 2016, that this company was making over £600k net profit. Pure fantasy passed and stamped by the FCA as good to go.

So these poor creditors, who being sensible businessmen and women, would have read up on East End Manufacturing, run credit checks and seen the good news story carried by Crowdcube in May 2016. Hey, no problem with this company's credit, they say, we can do business. 

By their own account only a month later in June the company was toast - having lost 60% of its revenues via 4 customers moving on. Was there no hint of that in May? Again by their own admission during the summer they entirely failed to get any new customers - is that really possible for a business 'moving in the right direction'?

The two main trade creditors have been hit with debts of £55k and £47k. Even for a substantial SME those are heavy debts likely to lead to lay offs or even closure. These creditors were misled by output from Crowdcube and the company. For the one owed £55k, this will put the company balance sheet into the red. Likewise the other one is small start up. 

So where does the responsibility lie? Could this company have run up these debts without Crowdcube? Simply put no. Who ran a piece praising this company and its future prospects just weeks before it was hung. Crowdcube. Have at least two small SME's been very badly damaged as a result. Yes. Is that really a sensible way to help the UK's SME's?

Quod erat demonstrandum.

September's predicted Tsunami begins with Crowdcube's East End Manufacturing closing down

Another one bites the dust. And another one etc etc

We have written about EEM before -
http://fantasyequitycrowdfunding.blogspot.co.uk/2016/07/east-end-manufacturing-getting-closer.html
http://fantasyequitycrowdfunding.blogspot.co.uk/2015/07/mind-gap-latest-players.html

We never thought they would make it - the pitch was poor and the plan was also poor. According to the note sent around to investors they were hard done by, by circumstances outside their control. Surely that reasoning would be better applied to the poor souls who trusted Crowdcube's due diligence and projections. They raised around £400k through Crowdcube from over 200 people in 2014.

In a Crowdcube blog, a sort of attempt to make them look like they care about about the businesses they help finance, the CEO of EEM said they expected to turn a profit this year. The blog here is dated 13 May 2016. Nice one Luke.

You can expect many more over the next few months.

Here for interest is the text of the conpany's last breath -

Dear Investors,
It is with the utmost sadness that we have to report to you a
series of recent catastrophic adverse events affecting East End
Manufacturing. This rapid series of bad news, coming since the
end of June has served to render the company unable to
continue trading, despite the fact that the business was
improving year on year as per the last report to you after the
last AGM.
It is not for us to comment on the political landscape, but the rapid general downturn in manufacturing and retail from the end of June, has rendered the company so severely damaged,
that despite all our efforts, we are not able to continue our business.
Despite manufacturing bouncing back in August led by those selling abroad thanks to the weaker Pound, we sell only in the UK and our raw materials are paid for in Dollars and Euros, so our costs have significantly increased.
In essence, we have lost our four most important clients in
rapid succession, making up more than half of our business.
Woven Wings (who have cancelled all future orders and
stopped output because of failed sales); The Hut Group (who
have taken all future manufacturing offshore to save costs);
Meng, a high end brand that is taking all production to China
from September and Represent (who have not only stopped
future production and moved this out of London, but have also
sent large amounts of perfectly good stock back to us as they
are heavily overstocked and are refusing to proceed with Autumn/Winter orders they had originally planned. Additionally, other smaller clients have also got into difficulty.
The Directors' fiduciary duty is to ensure that creditors are paid and also that no new money comes into the business without a reasonable prospect of turning the business round.  It would be wrong to borrow money or to ask for new equity funds without a good order book in place. This option was rejected.
This has left us to try to make an orderly closure of the
business: paying off creditors, laying off staff (yesterday), negotiating with the landlord (he has agreed to allow us to surrender the lease without penalty), calling in all outstanding funds to be collected and selling assets.  This is currently taking place and we have today agreed the most sensible way forward is to appoint a professional to ensure this is done correctly.
From an investment loss point of view, Barry Laden will lose his
investment fully and has never received any tax benefits from
that investment of around £50,000.
However, all other investors will have benefited first from SEIS
(at 50%) or EIS tax relief (at 30%) in the year you made your
investment.
As for the remaining loss, you will now be able to claim loss
relief and the following links provide some useful information:
https://www.gov.uk/government/publications/negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-hs286-self-assessment-he/hs286-negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-2016
and also here:
http://www.taxadvisermagazine.com/article/worth-next-nothing
and also here:
http://www.eisa.org.uk/wp-content/uploads/2014/03/No.-4-EIS-Example-Loss-Relief-2014.sw_.pdf
Please consult your tax advisor for further information because all private investors (apart from Barry Laden) in East End Manufacturing will qualify for some type of loss relief.
Please understand we are devastated by this terrible turn of events.  Good people have lost their jobs and investors will not benefit from positive returns in the future.  We tried very hard to create a business that believes in making products in this country, and for a few years we can be proud that we did exactly that for many brands and gave employment to tens of people; paying them properly and creating a wonderful working environment that set a benchmark for the industry.
Sadly all this was not enough to save us from the onslaught that our sector of manufacturing is experiencing right now.
Thank you SO much for believing in East End Manufacturing as we have.  As you can imagine, we have 263 shareholders so it will be difficult to answer any questions if you fire them back at us now, but please rest assured that we have done everything we can to try to make this business succeed.  Unfortunately it was not to be in the end.
The appointed professional will write to you next, to explain the position of the company and to confirm how they propose to settle the finances of the business.
Yours sincerely,

The Directors, East End Manufacturing Ltd.

East End Manufacturing getting closer to profit

In rare good news for Crowdcube funded businesses, EEM only made a small loss

East End Manufacturing raised money on Crowdcube back in early 2013.

Since then the projections have as ever been shown to worthless. However the good news for investors is that things are heading in the right direction. the reported loss for YE October 2015 was only £30k, considerably better than the previous year. 

The projections showed a profit of the period of over £400k but then who reads the projections anymore?