Goals Soccer Centre accounting loss balloons to £40m
1 Nov 2019
Troubled Goals Soccer Centre, which de-listed from AIM earlier this year following the discovery of irregularities in its accounts, has now admitted the profits of the business may have been overstated by as much as £40m since 2009
1 Nov 2019
The company has entered a pre-pack administration with administrators from Deloitte appointed.
At the time the accounting ‘black hole’ was uncovered in March, Goals said it believed this was down to the misdeclaration of VAT, which was estimated at £12m, excluding interest and penalties.
The discovery was made by BDO, which had been appointed the previous summer to replace the company's long-term auditors, KPMG.
Subsequently, forensic accountants from BDO and an internal investigation led by the company’s interim CFO recently identified what the company describes as ‘some very serious issues’ dating back to 2009. This included the apparent creation of false fixed assets, false revenues and fake invoices.
They also identified the wrongful payment of cheques to individuals associated with the company, in 2014. The extent of the problems has resulted in the sale of the company to Northwind 5s Ltd, a new company backed by Inflexion Private Equity and five-a-side specialist Soccerworld.
Soccerworld is run by Ian and Barry McDermott, whose father Ian founded Goals Soccer Centres in 1987 before selling it in 2000.
The transaction will be effected through a pre-pack administration where administrators, Deloitte, will have been appointed and simultaneously the business and assets of the company acquired.
The move has secured 750 jobs and means the existing centres across the UK and US will remain open for business.
In a regulatory announcement, Goals said the sale was ‘ultimately the only available solution, given the indebtedness of the company, the unresolved VAT situation and inappropriate accounting.’
Goals previously engaged both RSM and an independent tax expert to review the VAT situation. Having reviewed the last four years of accounts and transactions in fine detail, these parties reported to the board during the summer that they believed that this misdeclaration amounted to £13.2m, plus interest and any penalties HMRC deemed appropriate.
In the latest regulatory statement, Goals said its tax advisers have more recently informed the board that, given other issues the company has since uncovered as part of its detailed investigation, HMRC may be able to extend the window of any VAT investigation beyond four years. The amount owing could therefore be very significantly more than £13.2m.
As a result of these findings, the expected EBITDA for 2019 is now around £3.8m excluding significant advisor fees associated with managing the current issues. This takes into account the required changes in accounting methodologies.
Goals said the reports regarding the VAT and other accounting issues have recently been handed over in full to the relevant regulatory authorities and law enforcement agencies. This is believed to include alerting the Serious Fraud Office.
It reported that the combination of all of these issues means that closing the 2018 books has been complicated by the fact that no historic profit and loss account and balance sheet numbers can be trusted. The board said it therefore had no choice but to delist the shares, as current year accounts could not be presented in the allotted timescale.
Goals bank debt is approximately £30m, provided by Bank of Scotland, and the company has been in breach of key banking covenants for some months. The funds generated through the sale do not fully compensate even the lenders.
In its regulatory statement, Goals said: ‘The board has already taken steps to preserve the company's legal rights to compensation from parties who might be liable through negligence or more direct involvement, and entered into standstill agreements with former directors and also with its auditors of 15 years, KPMG.
‘The board is hopeful that action will be taken to hold those responsible to account, where appropriate. The board members would be supportive of any such action.’
KPMG is not making any comment at this time.