Error revealed just weeks after merger approach to Crest Nicholson
Avant Homes overstated its assets by 拢43m when it was acquired by Berkely DeVeer and Elliott Advisors in 2021.
According to an annual report filed at Companies House by Viva Midco Limited, Avant鈥檚 parent company, new directors at the business have 鈥渋dentified material errors鈥� in the reporting period to 30 April 2021 and before that.
The business, which had a turnover of 拢667m last year according to 好色先生TV鈥檚 list of Top 50 housebuilders, has undertaken a detailed assessment of reporting practices with assistance from independent professionals, which found errors in previously reported balance sheet and income statement positions.
The assessment found that costs and future obligations of 拢75.8m, resulting in an adjustment of 拢43m to the net assets in the acquisition balance sheet.
It comes only weeks after the housebuilder, which is run by former Persimmon boss Jeff Fairburn, approached Crest Nicholson with an offer to merge with its rival.
The proposed deal would have seen Avant merged into Crest Nicholson, which would have retained its Stock Exchange listing with New York Hedge fund Elliott as its largest shareholder.
Over several pages, the annual report detailed a litany of accounting errors that had resulted in the misstatement, emphasising that the new directors had implemented 鈥渨ide ranging changes鈥� to strengthen the control environment at the housebuilder.
The report also revealed that the group鈥檚 ability to continue as a going concern was 鈥渄ependent鈥� on renegotiation of loan covenants and cladding fund repayments.
The nature of accounting errors that led to misstatements
- Costs were not reviewed or scrutinised sufficiently resulting in an overstatement of margin and carrying value of work in progress
- Costs were transferred between developments by general cost transfers leading to an overstatement of the value of work in progress
- Open orders could be raised with suppliers with little or no tendering process leading to a lack of visibility of future cost allowances
- Development budgets were uploaded to the Group鈥檚 valuation system as lump sum allowances which did not provide any cost control and subsequently led to shortfalls across the group particularly when developments reach a conclusion
- Significant errors and omissions in reporting of CTC (costs to complete) in respect of key budget items, including planning obligations and final site completion works
According to the report, Avant would need a further relaxation of loan covenants 鈥渟hould downside forecasts arise鈥� but directors believe such relaxation is 鈥減robable given collaborative engagement with lenders to date鈥�.
Auditors also noted that negotiations over repayment of cladding funds constituted a 鈥渕aterial uncertainty鈥� for Avant鈥檚 business.
The group is negotiating with the Department for Housing, Communities and Local Government 鈥� until recently known as the Department for Levelling Up, Housing and Communities 鈥� over a repayment plan of reimbursements to the 好色先生TV Safety Fund, worth around 拢68.4m.
While the directors consider the likelihood of not being able to meet its obligations to the BSF and DLUHC to be remote, 鈥済iven the material size of the payment applications to be levied on the company, the failure to achieve this constitutes a material uncertainty鈥� over the group as a going concern.
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