PwC’s first receiver’s report on Du Val Group businesses identified accounting irregularities, complexities, lack of auditing and concerns about a trust in the name of founders Kenyon and Charlotte Clarke.
The High Court
PwC on Du Val: Accounting irregularities, complexities, lack of auditing, questions $431m valuation
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The absence of a formal independent opinion within the information memorandum raised concerns over the robustness of representations made in the document on which investors may have based their decision to participate in the share offer, PwC said.
The accountants had recommended Cabinet approve statutory management for 64 Du Val companies and limited partnerships “based on numerous features of the Du Val Group”, including its governance and mode of operations. That followed interim receivership last month after Financial Markets Authority action.
PwC said there are:
- Irregularities that warrant further investigation;
- Complexities which make it difficult to treat some of the members of the Du Val Group independently or separately;
- Risks to investors and creditors that would arise from a multiplicity of insolvency processes across the Du Val Group.
“There is evidence of irregular accounting entries that have created assets that may not be legitimate and/ or for which the recorded value is insufficiently supported,” the 39-page report said.
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PwC questioned aspects of a trust in the names of the Clarkes.
“We have particular concerns about transactions and balances involving the JK & CM Clarke Trust,” the report said.
Financial information indicated that Du Val Group NZ bought “intellectual property” from that trust for $15m in a historical transaction. A loan balance had subsequently been reduced to around $5.5m as of last March.
“As Du Val Group NZ does not have financial records in Xero we have been unable to determine the associated funds flow supporting these positions. Further investigation is strongly recommended,” the PwC report said.
“There are further transactions that also warrant further investigation. We have concerns about the status and basis of the transaction by which some limited partner investors in two of the funds,” PwC said.
Those are the Du Val Mortgage Fund Limited Partnership and the Du Val Opportunity Fund Limited Partnership.
Investors in the two entities had agreed to subscribe for shares in Du Val Property Group in exchange for their limited partnership interests, PwC said.
The court has allowed the Clarkes $1500/week each to live on, PwC noted.
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PwC had found significant related party balances requiring further investigation to determine what is recoverable within the Du Val Group and what creditor claims may exist.
The position is complex, both in terms of understanding the reason and basis for the transactions and the way in which they were accounted for.
“We are particularly concerned about maintaining value in the development sites. There are multiple sale agreements in place. To preserve value in the developments for the investors and creditors we need to negotiate completion arrangements with secured creditors. Those arrangements include further funding and continuity of work by contractors and supply of materials. Statutory management will provide greater certainty to all parties, including contractors and suppliers to those sites,” PwC said.
Since its establishment in or around 2013, the Du Val Group had grown significantly.
Developments were undertaken through the use of special purpose vehicles, including various limited partnerships and corporate entities.
The proliferation of entities, coupled with the group’s range of business activities and interests, contributed to the complexity of its funding arrangements and the difficulty we have encountered in obtaining clarity in respect of the structure and status of the entire Du Val Group in the short period since our appointment, PwC said.
Anne Gibson has been the Herald’s property editor for 24 years, written books and covered property extensively here and overseas.
