Wednesday, September 21, 2022

News: Auditor resigns from Liberty Speciality Steels


The firm paid to audit Liberty Speciality Steel, which operates facilities in Rotherham, has resigned, with the annual accounts still unpublished.

The company, part of Sanjeev Gupta's GFG Alliance, employs hundreds of staff in South Yorkshire, including in Rotherham. Gupta completed a £100m deal to acquire the Speciality Steels division of Tata Steel UK in 2017.

Last year, a group of MPs has noted a series of audit and corporate governance "red flags" around Liberty Steel having looked at the steel industry more closely following the collapse of Liberty's principal lender, Greensill Capital.

Since the inquiry, Liberty Steel has restarted production in Rotherham, having injected £50m of shareholder funds whilst it continues to look for longer term financing.

A relatively small audit firm, King & King, has now resigned its position at Liberty Speciality Steel and has brought a number of issues to the attention of the company's creditors.

In a letter to Sanjeev Gupta, Milan Patel, partner at King & King, said that it had been “unable to complete” audits of accounts for the year ending March 31 2020 "due to a lack of information and evidence in connection with the publicly reported SFO [Serious Fraud Office] investigation, the alleged fraud(s) and any internal investigations."

In April, the SFO attended trading addresses linked with Sanjeev Gupta’s GFG Alliance to request documents including company balance sheets, annual reports and correspondence related to the SFO’s investigation into suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of the business of companies within the GFG Alliance, including its financing arrangements with Greensill Capital UK Ltd.

King & King also said that there was a lack of evidence on the company's ability to fund its future operations for at least 12 months from the approval of the financial statements.

The audit firm also reported a lack of information and evidence regarding related parties and the "recoverability of related party balances."

With talk of Government support for the business last year, Business Secretary, Kwasi Kwarteng described GFG as having an "opaque structure" with "no guarantees where that money might eventually go." The Business, Energy and Industrial Strategy (BEIS) Committee discussed the structure and "questionable corporate governance arrangements" and added: "We believe that until Mr Gupta restructures his GFG Alliance companies into a more acceptable corporate structure and publishes consolidated accounts that are adequately audited, that he fails to fulfil the criteria that we believe should be applied to define a fit and proper person for the purposes of receiving any form of Government support."

The committee also discussed the choice of auditor and reported: "We found it utterly unconvincing, and do not believe that King & King had the capacity, expertise, or resources to audit the accounts of multiple large GFG Alliance and Liberty Steel UK companies representing over £2.5 billion of revenue.

"The reputation of Liberty Steel UK has been threatened by the poor audit and accounting practices of GFG Alliance, including the changing of accounting deadlines and its inability to produce consolidated accounts. As these accounts are yet to be published it is difficult to see the true financial picture of Liberty Steel UK. Unless remedied, these deficiencies severely limit the potential of that firm to be viewed as a reliable partner in any long-term strategy for the UK steel industry."

In May, the regulator of auditors, accountants and actuaries, the Financial Reporting Council, launched an investigation regarding four audits by King & King, including the audit of the consolidated financial statements of Liberty Speciality Steels Limited for the year ended 31 March 2019.

In June, courts ruled that financial firms Citibank and Credit Suisse could continue with their winding up petition against the speciality steels division of Liberty Steel. Issued to the courts by those seeking to recover money that they are owed, the move came ater HM Revenue & Customs (HMRC) issued a petition to have the speciality steel company wound up but following positive discussions, the petitions were withdrawn.

In a statement to the Financial Times, GFG Alliance said: "We have parted company with King & King due to overall issues resulting from the collapse of Greensill Capital. We are in the process of appointing new auditors. There is no impact on the operations of any of our businesses."

Liberty Steel website

Images: Liberty House


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