Tech Wreck Leaves Financial Rubble
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[Sydney, AUSTRALIA] The Australian Securities and Investments Commission (ASIC) has announced an investigation of 53 new economy companies, as troubled trader KGrind is publicly exposed by its administrator.
The collapsed youth broadband portal has been accused of trading while insolvent, a claim which is under investigation by Steven Sherman of accountancy firm Ferrier Hodgson.
Suspicions of foul play were first raised in July 2000 when the KGrind's solicitors wrote to Ferrier saying its "accountant has not kept proper accounting records in the last few months so that there is little data available since late April."
Sherman said in his report that the company may be presumed to have been insolvent from April 2000 onwards, noting failure to maintain adequate records, failure to deliver PAYE tax installments to the ATO and failure to pay statutory superannuation entitlements of KGrind employees. According to Sherman, KGrind's CFO sent the following desperate note to the CEO in September: "We are yet to pay the Tax Office superannuation contribution, Adam's claim, office service creditors before we have the phones and power cut off, and the long overdue creditors threatening legal proceedings...I will discuss this matter with [onetime backer] Pacific Metronet again this afternoon."
KGrind's employees, many of whom did not receive holiday pay or adequate super, would presumably have been less than impressed with the lavish Christmas party thrown by the startup in December. KGrind failed to pay wages totalling $123,000 for one fortnight in November and a further $37,000 in December. Annual leave totalling $109,000 was owing to employees. Unsecured creditors who may recover little or no funds are also understood to have been invited to the event.
The party is certainly over now for KGrind, with Sherman advising that the company be wound up in the face of $3.3 million principle advance debts to its secured creditors.
The startup's miserable demise comes as a timely warning for 53 Australian technology companies which have been issued with query letters by ASIC this week.
The commission's inquiry follows the completion of a surveillance project in which it monitored the financial reports and cash flow statements of 140 companies. ASIC said the checkup was a result of increasing public concern about the standards of disclosure by high tech companies. It's chief resulting concerns were the accounting for acquisition of businesses, the reporting and amortising of intangibles and the accuracy of quarterly cash flow statements and recognition of revenue.
The 53 companies under the microscope must answer ASIC's queries by 2 February at which time each reply will be individually reviewed.
Typical errors found were inaccurate cash flow statements which did not tie up quarter to quarter and premeture recognition of revenue.
"However, ASIC expects that many of the companies will be able to clarify or adequately explain their reporting," said Commission chairman David Knott, "and accordingly we do not intend to publicly identify the companies until they have had the opportunity to respond to our enquiries."