Selling operation traced to caravan: Mail-order customers are suffering heavy losses through company liquidations. David Hewson reports

IT SOUNDED as plausible as most addresses in the computer industry: 26 Plum Tree Park, Marham, Norfolk. The local police, however, knew it as Plum Tree Caravan Park, and, sure enough, when they visited, number 26 was a modest caravan.

Inside, there was no sign of the two men who had placed ads in three magazines offering cheap personal computers. Nor were there any computers. But there was enough information for the police to work out that nearly pounds 100,000 had been banked in deposits for non-existent machines.

The prospective customers of Peake Computers will probably be lucky. The police, who have yet to trace the two men, have frozen the bank account that they think contained most of the deposits.

But others may not be so fortunate. The direct-mail marketing of personal computers is leaving a string of victims who are paying in advance for computers that will never be delivered. In the last three months, in addition to the Peake affair, two firms that actually supplied computers, Ti'ko in Broxburn, West Lothian, and Olympic Technology in London, have collapsed. In total, pounds 1.1m of orders are unfulfilled. Some people get their money back eventually; none will get their computers.

Small people, businesses and individuals, are the mainstay of the direct-mail business, which this year is forecast to have a turnover of pounds 920m, accounting for 38 per cent of the PC market.

According to Keith Warburton, who is working on the formation of a direct-marketing association for the PC industry: 'Anybody can put together a PC. You can buy a kit. You don't even have to solder anything. All you need to come into the market is to found a company for pounds 100, find pounds 1,000 or so which will fund a couple of ads in the mags, and people will then send you money.'

Olympic looked like being one of the big winners in the direct-mail revolution. It was founded in the spring of 1991, selling highly-acclaimed PCs. In its 20 months of existence, Olympic went from nothing to an annual turnover of pounds 18m. At least, the liquidator thinks it did, though the true figure may be more. There were no purchase or sales ledgers for the company, and no normal profit and loss accounts. National Insurance and PAYE payments were rarely made.

The individuals, small businesses and charities who provided the bulk of the pounds 557,623 outstanding in pre-paid deposits for computer systems could lose every penny unless they are covered by a credit card or computer magazine protection scheme. The Customs and Excise alone is expected to claim more than pounds 1m in unpaid VAT and duty, and has already seized several of Olympic's assets.

Niels Sonntag worked for Olympic as sales and technical director. He says that, at its peak last August, the company was selling half a million pounds in goods per day. 'Very large sums kept being transferred to the US.' He said he was not to blame for the firm's failure: 'I had nothing to do with the cash end of the business.'

The direct-mail industry is linked symbolically with the computer press through which it reaches the great majority of its customers. While most areas of publishing have had to cope with a decline in advertising revenues over the last two years, computer magazines have bucked the trend. Personal Computer World, founded in 1978, is the oldest personal computer title in Britain, with a circulation of around 112,000. Its February issue had 534 pages, only about 200 of which were not advertising. If the average page is selling for pounds 1,000, which is probably on the low side, that means the issue attracted more than pounds 330,000 in advertising.

PCW operates its own mail order protection scheme, though readers could easily miss it. In the February issue's index, they are told to look on page 534; in fact it is page 526 that carries details of the scheme. VNU, the magazine's owner, is limited to claims of up to pounds 30,000 for any one advertiser and up to pounds 100,000 for all advertisers in a year. The last line says that refunds do not apply to 'goods purchased for business use'. Most of those buying through PCW's pages are business users.

Magazine protection schemes vary, both in the small print attached to repayments and the limits on payouts. Some cover business users, others do not.

Diran Kazandjian, technical and marketing director of one of the first mail order PC manufacturers, Viglen, founded 19 years ago and turning over pounds 50m annually, thinks magazines should do more to police the marketplace.

'They don't do much about complaints. They get them and they probably take them up with the customers but they don't publish them. Most of them shy away from saying anything about their advertisers, even if it is true.'

The saviours of the consumer recommended by the magazines are the credit card companies, which will probably foot the bill for most of the unfulfilled deposits at Ti'Ko and Olympic. The Consumer Credit Act gives credit card companies the responsibility of paying for unfulfilled orders, bought on their cards, of goods costing between pounds 100 and pounds 30,000. There are several little-publicised loopholes, however. The protection is strictly limited to private cardholders, and only the main cardholder in the case of joint card users. Business credit cards attract no protection, and the loser, in the event of a bankruptcy, will normally be the purchaser. The same loophole applies to the personal charge cards, such as Switch and Connect, which debit a sale direct to the user's bank account. In these circumstances, it is up to the discretion of the card company to decide whether to repay the money.

In the case of Olympic and Ti'Ko, people who paid by personal credit card should get their money back. Cash and cheque buyers who fall under the scope of the magazine protection schemes should, too, provided they meet the small print and the magazine's payout limits are not breached.

People in the industry have a habit of bouncing back from catastrophes. The founder of Ti'Ko had at least two crashed computer companies behind him. Most of Olympic's former employees now work for Nash Computer in Camberley, under Niels Sonntag. Nash has had no trouble in persuading magazines to run full- page colour ads. They promise a risk-free payment protection plan under which deposits go direct to the bank and will not be released until the goods are shipped. According to Mr Sonntag, only the bank will be able to release the money and the scheme is fail-safe.