Asset manager services provider MJ Hudson (MJH) has announced that its auditor, EY, has dramatically resigned after barely 18 months in the job.
An auditor resignation after such a short period of engagement is highly unusual, but EY’s resignation letter was unambiguous in its criticism of the company’s management. It said: "We are ceasing to hold office because we have lost trust and confidence in the company's management and those charged with governance, and in their ability, along with your finance team, to provide us with accurate and reliable information for audit."
MJ Hudson was already in an awkward interim situation, with an outside financial organisation overseeing its finances to allow the year-end 2022 accounts to be completed.
This follows the suspension of its former chief financial officer Peter Connell in December following questions raised at the time over the state of its finances and the subsequent appointment of Ran Oren as interim CFO. Connell had already stood down as a director in October.
MJ Hudson’s problems can generally be reliably summed up as too much debt on the balance sheet and not enough cash. It has a £17.5mn debt facility with Santander payable in 2026. Until July last year, the company had been active in raising money from investors, including completing a £9mn via a placing and retail offer.
It is fair to say that relations between MJ Hudson and its auditors had already been strained by audit adjustments in October that had forced changes to the company’s guidance for cash profits. In July, the company had claimed a forecast for cash profits of £8.3mn, but problems with revenue recognition highlighted by EY caused this to be downgraded. It was notable that the adjustments covered a broad range of issues from general revenue recognition to charges for management time for fundraising and the capitalisation of IT development costs – in accounting terms, any of these can be used to inflate profits.
Before EY’s resignation, MJ Hudson had already put itself up for sale, and has now said some initial offers for some of the company’s business units had already landed. The due diligence phase is now starting, though it must be open to question whether investors will see much value after the company’s debts have been cleared and assuming that it avoids administration through a successful sale. Its shares remain suspended.
