Hugo Biermann of Vernon Pools fame has suffered a setback in establishing his new empire by means of personal computer network service firm, Maddox Group Plc. The London-based company has been hit with a double whammy. On the one hand, accountants Ernst & Young are gripped by fundamental uncertainty as to whether Maddox can recover the full UKP15m in consideration owed it from the sale of Cables & Flexibles Ltd and Seacoast Electric Co Inc to their management (CI No 2,164). On the other, and as a direct result of this, the firm’s 1992 pre-tax profits have been revised downwards to UKP453,000 from the UKP1.1m announced in May. Maddox accredited UKP681,000 from the sale to its profit and loss account as an exceptional item, but in view of the uncertainty the auditors insisted it transfer the figure to its balance sheet as deferred income. Chairman Hugo Biermann’s explained to shareholders that when he sold the two subsidiaries they were loss-making. And I am sorry to say that conditions have not shown the extent of the recovery, which we anticipated when we announced our Conditional Results. And it has, therefore, been deemed more appropriate and prudent to defer the remaining gain on disposal of these businesses of UKP681,000. The problem came to light when Ernst & Young began auditing the group’s year end figures in accordance with the new FRS 3 accounting standards. It was then it spotted the UKP15m in investments, which comprise various preference shares and loan notes received by Maddox as part payment for the two businesses, which were sold for UKP19.5m in total. Maddox’s directors obtained an independent valuation of the investments by US securities house Whitman Heffernan, and although Ernst & Young says our opinion is not qualified in this respect, doubts over the situation have proved sufficient for it to take action. The Independent said it understood if the new standard, SAS600 had not been introduced, then Ernst & Young would have been forced to qualify the group’s accounts. The net recoverable amount of the investments will be reviewed on a six-monthly basis. But if problems persist at the two companies Maddox will have to charge any writedown to its profit and loss account. And because the size of the investment is proportionately higher in value than the group’s total net assets, such a write-down could have a serious impact on both its future results and shareholders’ funds.
Content from our partners
