Error revealed just weeks after merger approach to Crest Nicholson
Avant Homes overstated its assets by £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’s parent company, new directors at the business have “identified material errors” in the reporting period to 30 April 2021 and before that.
The business, which had a turnover of £667m last year according to Housing Today’s 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 £75.8m, resulting in an adjustment of £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 “wide ranging changes” to strengthen the control environment at the housebuilder.
The report also revealed that the group’s ability to continue as a going concern was “dependent” 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’s 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 “should downside forecasts arise”, but directors believe such relaxation is “probable given collaborative engagement with lenders to date”.
Auditors also noted that negotiations over repayment of cladding funds constituted a “material uncertainty” for Avant’s business.
The group is negotiating with the Department for Housing, Communities and Local Government – until recently known as the Department for Levelling Up, Housing and Communities – over a repayment plan of reimbursements to the Building Safety Fund, worth around £68.4m.
While the directors consider the likelihood of not being able to meet its obligations to the BSF and DLUHC to be remote, “given the material size of the payment applications to be levied on the company, the failure to achieve this constitutes a material uncertainty” over the group as a going concern.
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