Alpha crisis could lead to legal action

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John Rimmer

10-May-2006

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An investigation reveals that the retail and catering group "consciously assisted" an unnamed customer "to put itself in a position in which it might have been able to manipulate its own financial statements"

Alpha Airports Group has issued a statement on the circumstances leading to auditor PricewaterhouseCoopers' (PwC) refusal to sign off its preliminary results for the year ending January 31, which in turn led to the suspension of Alpha's shares on April 25. As reported in DFNI May 1, the group insisted that its cashflow was not affected, but it admitted that by making new commercial arrangements with an unnamed customer in October 2005 Alpha had "consciously assisted" its client to put itself "in a position in which it might have been able to manipulate its own financial statements" ahead of an initial public offering.

Alpha said that if its customer is proved to have manipulated its financial statements, the group could face legal action. If any valid claims are brought, the group said it would pursue its own claims against third parties.

Meanwhile PwC has said that it believes that "the true effect of the new contractual arrangements" was misrepresented in its communications with Alpha.

As reported in DFNI May 1, Alpha has charged a special committee made up of two non-executive directors to investigate. It has appointed an independent law firm to explore the transaction and related matters.

The statement from Alpha contains the following explanation:

"The Group entered into new contractual arrangements with the customer which purported to make material changes to the structure of the commercial dealings between the Group and the customer in 2005/6, but did not significantly change the amounts payable to the Group in its financial year. Material aspects of these new arrangements may not have been intended to have proper commercial effect and so there is a question about whether they were genuine transactions.

"By entering into the new commercial arrangements in October 2005 with the customer, the Group consciously assisted that customer to put itself in a position in which it might have been able to manipulate its own financial statements in circumstances in which the customer's parent company was preparing for an initial public offering. The Group does not know whether or not the customer's financial statements were in fact manipulated. If those financial statements were manipulated, and depending on all other relevant factual circumstances, claims may or may not be brought against the Group. If any valid claim were to be brought, the Group would seek to pursue its own claims against third parties.

"Preliminary conclusions with regard to the first and second issues are that they do give rise to valid concerns. It also appears that in entering into these arrangements those responsible considered them to be in the best interests of the Group because the arrangements also involved a long-term contract. They believed they took appropriate professional advice as to the consequences for the Group and appear to have received no personal gain."

The transaction under investigation accounted for receipts of £7.5m ($13.2m) in Alpha's last financial year, and the money has been received in full.

While discussions between Alpha and PwC continue, trading in the retailer's shares remain suspended.

Keep an eye on RavenFox.com for reaction and updates.

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Alpha crisis could lead to legal action

John Rimmer

An investigation reveals that the retail and catering group "consciously assisted" an unnamed customer "to put itself in a position in which it might have been able to manipulate its own financial statements"

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