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Government poised to step in as Sports Direct struggles to find auditor

Yahoo! Finance UK logo Yahoo! Finance UK 4 days ago Oscar Williams-Grut
Mike Ashley wearing a suit and tie: Sports Direct CEO Mike Ashley leaving the Sports Direct headquarters in London, as the company has revealed it is being pursued by authorities in Belgium over a 674 million euro (£605 million) tax bill, following a recent audit. (Photo by Kirsty O'Connor/PA Images via Getty Images) Sports Direct CEO Mike Ashley leaving the Sports Direct headquarters in London, as the company has revealed it is being pursued by authorities in Belgium over a 674 million euro (£605 million) tax bill, following a recent audit. (Photo by Kirsty O'Connor/PA Images via Getty Images)

Sports Direct (SPD.L) is on the brink of being forced to ask the government to appoint an auditor for the business, after being shunned by the City.

The discount sports retailer holds it annual general meeting (AGM) with shareholders in London on Wednesday. Auditor Grant Thornton quit last month and Sports Direct is legally bound to find a new auditor by the AGM today.

Sports Direct warned prior to Grant Thornton’s resignation that it faced “barriers” to working with major auditors and has been struggling to find a replacement.

The retailer has been holding emergency talks with the “Big Four” — KPMG, PwC, EY, and Deloitte — in the last two weeks to try and get them to bid for the business, Sky News has reported.

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Shareholder advisory group PIRC said on Wednesday morning: “The Companies Act 2006 says in Section 489 that an auditor must be appointed by the end of the meeting where the accounts are laid, which is today’s AGM. Since no auditor is currently proposed we don’t expect this to happen.”

If Sports Direct cannot find an auditor by the AGM at 11am this morning, it will be forced to ask Business Secretary Andrea Leadsom to step in and legally appoint a firm. The retailer has already asked the government to clarify how it might act if it becomes the first major UK-listed business to fail to appoint an auditor, according the Financial Times.

“This would really sting, given the additional damage to the firm’s reputation and because Ashley hardly strikes you as someone who would relish surrendering control in this way,” said Russ Mould, investment director at stockbroker AJ Bell.

Auditors see Sports Direct as posing too much of a reputational risk to take on as a client. In July, Sports Direct’s results were delayed for hours with no explanation and the final publication revealed a surprise tax bill of £605m from Belgian authorities. Grant Thornton was reportedly surprised by the bill just hours before the accounts were due to be published.

Related: From Athena to Zavvi, shops that disappeared forever from UK high streets (Lovemoney) 

Besides the auditor drama, Sports Direct is likely to face shareholder ire at today’s meeting. Advisory firm ISS recommended investors vote against the re-election of Mike Ashley as group CEO, citing “ongoing operational, governance, and risk oversight concerns.”

Ashley has been criticised for making high-risk bets on the High Street despite falling sales and footfall. Ashley has used Sports Direct to buy stakes in Game, Debenhams, and Evans Cycles. The company has also taken over bust department store House of Fraser and struggling preppy retailer Jack Wills.

“Ashley’s own shopping spree in the past year or so is not winning many friends among investors with serious questions raised about the decision to buy House of Fraser and Jack Wills,” Mould said.

“Given an extremely difficult industry backdrop you have to question why the retail entrepreneur is so keen to hoover up UK retail assets.”

ISS warned that the House of Fraser deal “has led to concerns about the Company's viability as a whole, bringing into question the effectiveness of the Group's process for evaluating risk in acquiring distressed companies.”

Sports Direct has banned media from attending its AGM.

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