Founders of collapsed fashion label 'plundered millions', High Court papers claim

The founders of the luxury fashion label that designed Meghan Markle’s £56,000 engagement dress have been accused of plundering millions of pounds from the company to bankroll their jet-set lifestyles, causing it to collapse.

Ralph & Russo, renowned for designing stunning haute couture gowns for Hollywood’s biggest stars, plunged into administration in March.   

Forensic investigators are now trying to discover what became of around £60 million pumped into the company by investors between 2018 and 2020.

Glamorous designer Tamara Ralph, 39, blamed ‘unprecedented trading conditions’ caused by the pandemic for putting ‘tremendous strain’ on the brand, which she founded with her former partner Michael Russo.

But sensational court papers obtained by The Mail on Sunday paint a very different picture and claim Ms Ralph and Mr Russo raided vast sums from the firm, crippling its chances of survival.

The documents allege that:

• Ms Ralph spent tens of thousands of pounds of the company’s money on luxury hotels, business-class flights, lingerie, yoga classes, beauty treatments and expensive hair appointments;
• As the company’s finances unravelled, its pension fund was raided for £176,000 – on Ms Ralph’s watch – leaving employees out of pocket;
• Mr Russo extracted more than £2.6 million from the firm, some of which he spent on gambling at a Mayfair casino, expenses related to his pets and ‘rental property for his girlfriends in Los Angeles and London’;
• The pair splashed out more than £2 million on parties and other events ‘which were in reality for their personal enjoyment’ and used company funds to buy a Range Rover and Rolls-Royce ‘for their personal use’;
• When the fashion house collapsed, it owed the taxman £2.8 million after money was deducted from staff pay packets but not passed on to HMRC;
• Ms Ralph’s lavish spending included a whopping £14,000 for a short stay at the five-star Berkeley Hotel in Knightsbridge, London. 

 The papers, lodged in the High Court, reveal that the company, via its administrators, is now suing Australian-born Ms Ralph for £20.8 million in damages which they say resulted from her failing to comply with her duties as a director.

To date, they have not issued any legal proceedings against Mr Russo, who it has been claimed took a back seat in the company from early 2020.

Ms Ralph denies the claims, which she last night described as ‘misconceived and demonstrably false’.

The documents reveal that by March 1, the company had less than £100,000 in the bank but owed a staggering £23 million to creditors and the taxman.

Last week, it emerged that US investment firm Retail Ecommerce Ventures had rescued the company but that neither Ms Ralph nor Mr Russo would have any further involvement.

The legal case marks a spectacular fall from grace for two of Britain’s most celebrated designers. The pair ran their fashion empire from what they called their London Maison, an opulent 19th Century Mayfair townhouse where wealthy clients would attend fittings.

They also had boutiques in Paris, Monte Carlo, Doha and Dubai and were planning stores in New York and Miami.

The black dress with beaded bodice worn by Meghan in December 2017 cost a reported £56,000.

Other A-list clients included Penelope Cruz, Jennifer Lopez, Gwyneth Paltrow, Kylie Minogue, Nicole Kidman and Angelina Jolie. 

In an emotional statement posted on Instagram when the firm collapsed last March, the couple said: ‘This difficult decision has been made to help ensure the company’s ongoing success and to restructure the business after the retail economy across the world has been badly hit by the Covid-19 pandemic.’

But, according to the court papers, Ms Ralph and Mr Russo ‘collectively extracted substantial sums of money’ from the firm. ‘The sums appropriated by the defendant [Ms Ralph] (and by Mr Russo) were spent principally on personal expenses, expenses with no business justification, to fund the defendant’s and Mr Russo’s lavish lifestyles,’ the papers claim.

The company’s financial woes are squarely blamed on Ms Ralph’s ‘serious wrongdoing’, which ‘stripped’ the fashion house of its cash.

It is claimed that by the time the company went bust, Ms Ralph, the firm’s creative director, and Mr Russo, its chief executive, had withdrawn more than £2.8 million in so-called directors’ loans.

Of that, Mr Russo allegedly withdrew the most – £2.6 million – while Ms Ralph received £195,436.

The company’s administrators argue that the pair spent the money on personal expenses ‘in entirely inappropriate circumstances’.

‘Although these sums were designated in the company’s accounts as payments made under a ‘directors loan account’, they were simple cash extractions,’ the document claims.

Between July 2017 and November 2019, Mr Russo allegedly withdrew an astonishing £151,000 from the same cash machine, which the administrators believe is inside the Palm Beach Casino in Mayfair.

‘It is inferred that Mr Russo spent these sums on gambling,’ the document states.

It adds: ‘There was no reasonable or realistic expectation that the ‘loans’ made to Mr Russo were to be repaid.’

Meanwhile, Ms Ralph, who was paid an annual salary of £225,000, is said to have spent company money on ‘stays in luxury hotels and business class flights, expenses related to her pets, utility bills, yoga classes, lingerie, a housekeeper, beauty expenses, and hair care’.

At the height of their creative partnership, Ms Ralph and Mr Russo were also in a romantic relationship, although the documents claim they split towards the end of 2018, ‘around the time the company’s financial position became increasingly untenable’.

Ms Ralph relocated to Monaco, where she now lives with her new partner, British-Indian billionaire and Liberal Democrat donor Bhanu Choudhrie and their baby daughter, born in January.

The legal document claims that after moving to Monaco, Ms Ralph spent thousands of pounds on luxury hotels when visiting London for work and required her company to pay the bills.

In September 2020, she ran up a £4,405 bill at the Cadogan Hotel in Chelsea, a five-star boutique hotel that once hosted Oscar Wilde, while the following month she incurred a £14,292 bill for a stay at The Berkeley Hotel, in Knightsbridge.

By then, the administrators say, the company – which collapsed just five months later – was in a ‘precarious financial position’.

‘She was not entitled to claim expenses caused by her personal decision to relocate to Monaco and it was not in the company’s best interests to support that decision financially,’ the papers state.

The administrators are also investigating possible payments for luxury furnishings, including a Moses basket and rocking horse, that were shipped to Ms Ralph’s new home in Monaco, the documents claim. Meanwhile, Rolls-Royce and Range Rover cars allegedly bought for the personal use of Ms Ralph and Mr Russo were later sold at a loss.

The documents also include an astonishing allegation that, while Ms Ralph was enjoying some of these spending sprees, around £176,000 was ‘appropriated and/or diverted from the company pension scheme’ between October 2020 and March 2021.

It is claimed that while employee pension contributions were being deducted automatically from their pay packets, the company failed to pass the money on to Aviva, its pension provider.

Instead, it is claimed the money was used elsewhere, including to pay for the directors’ loans that Mr Russo and Ms Ralph were allegedly using to bankroll their lifestyles.

The legal document claims that as a director of the company, Ms Ralph either was or should have been aware that pension money was being diverted and alleges she ‘breached her employment contract and her duty of care to the company’.

Under pension law, companies must pass on employee contributions to their provider by the 22nd day of the month after they were deducted from salary.

It is also claimed that while the company’s payroll was deducting tax and National Insurance from its employees’ salaries in 2020/21, it was not passing the money on to HM Revenue & Customs ‘at the same time as it was finding the funds to support the lavish lifestyle of [Ms Ralph] and Mr Russo’.

Administrators say the company owes HMRC £2.8 million in unpaid tax. A source close to the case claimed that the allegations could also spark a criminal probe. 

‘This will end up in the courts for years,’ the source said. 

In January, the pair appeared in their last joint interview together and outlined bold expansion plans, including venturing into cosmetics and home furnishings.

Reflecting on the label’s success, a heavily pregnant Ms Ralph said: ‘We always had a vision to have a global luxury brand.’ But less than two months later, the company went into administration, with debts of £23 million.

Its collapse came despite the company securing £60 million in investment in recent years, including a £17 million loan from Candy Ventures Sarl, an investment company belonging to property developer Nick Candy.

According to the court documents, administrators believe the firm’s final accounts ‘misrepresented the company’s financial health by at least £20 million’, making it wrongly appear to be solvent.

Last night, a source close to the company said: ‘Michael and Tamara will no longer be part of the Ralph & Russo brand and business moving forwards.

‘A new creative director will be appointed who will take this world-class brand forward for the next phase of its journey and further develop its unique position within the luxury market.’

The legal documents claim that Ms Ralph had been courting investors in a bid to launch a rival firm, which it is claimed breached her duties to the company and her employment contract.

It is claimed that shortly before the firm plunged into administration, Ms Ralph instructed her design team to prepare a folder containing sketches, measurements and materials for 80 new couture dresses, effectively misusing the company’s intellectual property.

In a statement to The Mail on Sunday, Ms Ralph said: ‘The claims made against me are misconceived and demonstrably false.

‘I am constrained in what I can say about these claims pending my formal response but, if they are not withdrawn, I look forward to responding to and defeating them through the proper legal channels. I worked tirelessly over 11 years to build and develop the Ralph & Russo brand and gave my all to the business, its customers and to the team. The last 18 months have been the most difficult of my career, and I believe these ill-founded claims are the latest part of a concerted campaign to bully, silence and coerce me.

‘It is particularly regrettable that this is happening in an industry that champions women’s rights.

‘I look forward to telling my side of the story in due course.’

Mr Russo did not respond to a request for comment.

How did an unknown Aussie duo turn into Hollywood’s must-wear designers?

When Meghan Markle chose to wear a diaphanous, long-sleeved gown created by Ralph & Russo for photographs marking her engagement to Prince Harry, it confirmed the label’s stellar ranking in the world of high fashion.

But it also raised a question that had intrigued industry insiders for years: How did a relatively unknown couple forge a fashion powerhouse with a client list that included royalty, billionaires and Hollywood A-listers?

Indeed, US fashion bible Harper’s Bazaar once described glamorous Tamara Ralph’s ascendancy into the hallowed ranks of international couture as ‘nothing short of a real-life fairy tale’.

Born and raised in Sydney, Ms Ralph is the fourth generation of her family to be a fashion designer and began creating her own pieces aged 12, under the guidance of her mother and grandmother. 

After studying at design college, she bumped into financial consultant and fellow Australian Michael Russo on the King’s Road in Chelsea on holiday in London. They fell in love and began a long-distance relationship.

A year later, he bought her a flight to London – and a sewing machine – and the pair began planning their luxury label.

‘When we first launched the brand in London, we didn’t have any established connections in the industry and truly had to start from square one,’ Ms Ralph said in an interview last year.

‘Our business really took off through word of mouth. We were also incredibly fortunate to have received interest from major celebrities from the beginning, which of course helped to make a name for ourselves quite early on.’

The couple caught the attention of ITV viewers in 2009 after designing a red fishtail dress worn by Amanda Holden when she was a judge on Britain’s Got Talent – and a one-shouldered gown with thigh-high split for X Factor panellist Dannii Minogue. The following year, the couple officially launched their label and – remarkably – their outfits were soon on sale at Harrods.

Speaking in 2018, Helen David, then fashion director at the luxury store, said: ‘We picked up Ralph & Russo in 2010 just as the brand was emerging.

‘It sells exceptionally well – they are also a younger house and therefore adding new categories constantly, which is exciting for the type of clients they work with.’

In April 2019, Ms David went to work for Ralph & Russo as the brand’s chief growth officer.

Fashion experts, however, have been surprised at how quickly the label progressed from dressing TV panellists to international royalty and A-list stars.

Ralph & Russo designed tour costumes for Beyoncé and a cornflower blue off-the-shoulder gown for Kylie Minogue for Vanity Fair’s party at the 2015 Oscars.

An early devotee was Angelina Jolie, who so adored Ralph & Russo she asked the label to create her costumes for the 2019 Maleficent sequel, as well as the glittering silver gown she wore at its London premiere.

But dressing celebrities in gowns costing tens of thousands of pounds is not necessarily a money-spinner.

Dresses are typically on loan or gifted and the cost absorbed as part of a marketing budget, in the hope that the publicity will attract ultra-wealthy clients. Then, in 2014, Ralph & Russo became the first British brand in almost a century to be accepted into the prestigious French regulatory body, the Chambre Syndicale de la Haute Couture, placing the brand at the pinnacle of high fashion.

Wider public recognition came in 2017 when they designed the Duchess of Sussex’s £56,000 engagement gown.

Earlier this year, Ms Ralph said: ‘It was very exciting. It was such an iconic moment not just because of the two of them, but also because of her choice of piece for the day. It showed her personality – it pushed the boundaries.’