London, England: ‘A major investigation’ involving forensic accountants is underway into how retailer Direct Golf UK was able to accrue hidden debts of almost £14 million, according to a report by Golf Business News.
New details of the collapse of the company have emerged after a report revealed that substantial accounting errors led to a failure to record millions of pounds in losses in official accounts.
Information released in a report to creditors by joint administrator Duff & Phelps sheds new light onto the closure of the business – parts of which were later sold to Sports Direct in a move that safeguarded 162 jobs.
The report states Direct Golf’s statutory accounts that were agreed by the board before being signed off by Huddersfield-based founder John Andrew showed a small profit after tax for the period ending in September 2014.
It is now emerging that, in reality, the failed company – which had 20 specialist golfing retail stores nationwide – had made losses over the same period of £4.7 million.
A source with knowledge of the situation said: “The financial truths are shocking. There may not have been full transparency so far with the account of events available to the public.”
It is understood that Sports Direct had originally agreed to advance £3.75 million to the company as part of a £10 million capital facility on the understanding that Direct Golf was solvent. The £3.75 million advanced by Sports Direct consisted of £2.25 million in late 2014 and a further £1.5 million in early 2015.
The investigation, said the Golf Business News report, will now focus on what happened next and, in particular, why it took so long for information relating to the losses to come to light. It will also look at the actions of the company directors towards creditors once the losses had been widely identified.
When the financial problems were discovered, Sports Direct’s staff sought clarification – but the report says they were ‘unable to obtain the financial information and explanations they required to advance further monies’.
Direct Golf UK subsequently ran out of cash and Andrew and his co-directors filed a Notice of Intention to Appoint Administrators in September 2015, effectively ceasing to trade in the process.
It was a month later, after the administrator had been called in, that Sports Direct purchased assets that enabled a new company called SDI Golf Ltd to take over parts of the business, hence safeguarding employees.
Meanwhile, total debts now owed to creditors amount to almost £14 million – although Golf Business News says it understands that it is hoped that a proportion of these can be recovered in the future as part of a Creditors’ Voluntary Liquidation.
The series of events is now seen to be very different to the way the events were portrayed in some sections of the media, which at the time described the Sports Direct purchase as ‘a boardroom coup’.
Our source added: “Talk of burly men arriving to change locks and upsetting staff sounds dramatic, but the fact is that was normal procedure for the administrators for the situation. The true facts will emerge in due course.
“The efforts that Sports Direct has made to safeguard jobs should be duly acknowledged, especially given the circumstances that have been uncovered.”
Meanwhile, the administrator’s report has revealed that major investigations are now underway into the scale of the losses.
It is unclear how the scale of the losses were not picked up by the directors, auditor and accountants – as the original auditors report which was issued with the 2014 accounts wrongly stated that they were materially accurate.
The new administrators report states that: “Property information, (and) other key financial and operational information was also missing.”
The investigation will seek to establish whether or not any preferential payments were made in order to reduce company and director’s personal liabilities.
It is understood that forensic accountants are now attempting to retrieve company email records in order to throw light on the situation.
GBN.com has been told that the report states: “During our preliminary investigations there are a number of transactions that on the face it may require detailed investigations. Additional information is required to understand the true nature of the transactions.
“The joint administrators are currently collating all the information. Additional details cannot be disclosed at this stage to avoid prejudicing any potential recovery.”
Andrew has denied being responsible for the debacle. He was recently quoted in a newspaper as saying: “I’m not to blame for any of this and I’ve looked back at what’s happened and I don’t know what else I could have done.”
This story has broken with remarkable speed. It was as recently as August 7 that Golf Business News reported Direct Golf to be heading for a record-breaking year – a statement which was in line with the report which had appeared a month earlier in the trade magazine Retail Week.
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