[ED BDO Chairman Tony Schiffman has sent an official response which we've included below]
In its official response to our post last week reporting rumours of its impending collapse, the National Chairman of mid-tier accounting firm BDO, Tony Schiffman, boasted:
BDO’s Victorian/NSW firm is financially robust…
However, Mr Schiffman’s claim appears to be at odds with the sworn evidence of at least one person, who stated in a document leaked to us (apparently dated circa April 2010):
core debt remains oustanding to a level of $53.91 million having been reduced substantially via a $10 million capital raise from the Directors completed in December 2009.
The same leaked document contains an entire affidavit sworn by the CEO of BDO (Melbourne/Sydney), Pat Donato. The affidavit gives a fascinating insight into the reasons behind a capital raising completed by BDO in December 2009. BDO partners individually gave personal guarantees for the capital raising which, we’re hearing from numerous unnamed sources, has lead to all BDO directors having an average personal exposure to banks financing the firm of over $1million. But don’t take our word for it, read it for yourself (paras 10 -12 in particular). We’re hosting a copy of Mr Donato’s affidavit, together with the unnamed affidavit here.
We are also hosting what appears to be an extract from the transcript of the trial in relation to which Mr Donato’s affidavit was filed as evidence here (barrister Peter Collinson SC appears to be doing the talking).
You’ll recall that our post last week we reported the rumours that BDO Melbourne and Sydney were in such financial strife that the international parent was threatening to pull the licence, and this led to two of Brisbane BDO’s tax partners quitting. This yielded the following edited official retort from Chairman Schiffmann:
BDO is Australia’s fifth-largest full-service accounting network and it continues to expand in response to market and client demand. The loss of a Partner is part of operating a professional services firm, and BDO’s recruitment program ensures the network retains an enviable depth of expertise. At present, BDO in Australia has 150 Partners, supported by more than 1300 staff.
Certainly sounds good on paper, but if the rumours we’re hearing are true, at least some of those 150 partners might be hanging around because of the personal guarantees they gave to secure finance for the firm to dig it out of a massive GFC hole. And we’re not talking about chump change, either.
Again, don’t take our word for it, read for yourselves! We’re hosting a copy of a letter sent to all directors in November 2009 encouraging them to sign up to the aforementioned capital raising here, as well as a very detailed sales pitch slideshow showing what the capital raising was intended to achieve (and how it would work) here.
But it doesn’t stop here. According to an anonymous BDO spy yesterday, partners are again being asked to dig deep and a few have apparently had enough:
At least 2 directors have just resigned from BDO in Sydney. One may be a member of the BDO nsw/vic board. Melbourne practice is leaking clients and several directors across different divisions are about to leave, only decision left is which competitor to go to.
BDO debt reply is nonesense. It only makes sense if you ignore leases, working capital facilities and the debt each director had to take out personally. Total debt is closer to $120m and directors are now being asked to provide personal guarantees for $20m of the corporate debt to get that banks continued support. Other 2 banks not likely to be happy with that arrangement.
BDO have been given 1 to 2 months grace by the banks and BDO International to sort the NSW/VIC mess out. If they can’t the BDO licence will be pulled and given to another firm who BDO are already talking to. Banks will have to step in then and effectively control BDO nsw/vic as significant fees from international BDO referrals will vanish ($6m) and clients will walk.
The comments above were soon followed by this, also from an anonymous BDO spy:
Current whisper is that a further group of NSW VIc directors have resigned. What will the spin doctors from the office of the CEO say this time? I fear a slow death for all!!
Watch this space folks – it doesn’t sound good at all. Unless… you are a Big4 accounting firm looking for new talent and clients!
Send the Firm Spy your news and views!
–
UPDATE
From Tony Schiffmann, National Chairman, BDO Australia:
This information is out-of-date and has been misrepresented, and in many cases is wrong. It has already been addressed on the public record in the media and in other forums. It is important to note that the same information has been sent to leading financial journalists who have investigated it and seen it for what it is – an ill-informed attempt to discredit a strong, respected and highly successful national firm.
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Interesting comments made by the judge in the recent case that resulted from the two tax partners (Beechey and Ngo) leaving the Melbourne practice (BDO Group Investments (NSW-Vic) Pty Ltd & Ors v Ngo & Ors [2010] VSC 206 (21 May 2010)) which appears to add weight to the fact that the NSW/Vic practice is going under, specifically:
“As a result, indebtedness of $65,190,000 was incurred by the BDO Group for the purpose of acquiring the practices for a goodwill price of approximately $75 million (calculated by application of a multiple of 5.5 by forecast EBIT) which….enabled very large cash distributions and other benefits to be received by the directors and partners of the merged practices.”
Evidence submitted indicated that, “$75 million was “extremely high goodwill price” having regard to the fact that an offer from Deloitte had been received in the 2004-5 financial year to buy the practice for a goodwill price of $20 million.”
The judge upheld BDO’s request for an injunction against the two due to the fact that:
“In my view, the relative prejudice that may be caused to the plaintiff as a result of the departure of the defendants, Ngo and Beechey, unrestrained by any interlocutory orders, is likely to be serious as a result of possible further director and staff departures and also as a result of financing difficulties with Bankwest. There appears to me to be a significant risk that unrestrained departures of directors and staff may tend to have a significant adverse effect on the value of the goodwill of the BDO Group business which it acquired and which is the only security Bankwest holds for its financial accommodation to the BDO Group.”
As per the comments above, the subsequent departures in Victoria, WA and Qld will no doubt place more financial pressure on the BDO Group.
I love the giant negative ratings on the comments… like it makes one ounce of difference what the comment’s rating is….
As at the date of this posting, the negative ratings are (only) 104 from 106 votes… assuming the Firm Spy article is correct and BDO has 150 Partners, does this mean that 46 Partners didn’t get the memo and log in to give the article a negative rating… ?
Looks like not just the partners got the memo, must have gone to all staff. Either that or some poor sod at BDO has got the sad task of repeatedly voting down all these posts in a feeble attempt to dispel the rumours.
Dear BDO Partners
Positions available. Three square meals a day provided. Prior applicants need not apply.
PKF
BDO’s really big in Perth.
The people that sit around writing this sh&t are very sad. Perhaps if you did something constructive when you worked here there would be nothing to write about.. You are poison and I feel sorry for your new employers and your family!
This is quite amusing. BDO in Brisbane, for years, has been trumpeting itself as a ‘big 5′ player, to the amusement of the true large firms.
This onslaught of misinformation too, is extremely common in the ‘cowboy’ mid tier accounting environment in Brisbane.
^^ now there’s a legit post to mark down. bdo arsehat
Just to add to the sentiment of “BDO Staff March 24 9.45am “. Hope you understand how your clients feel about your gossip, hope you are good at marketing……….you will need to be!
Even tho you are not fooling anyone with your negative rating shennanigans, let’s assume for a second that the mark downs are legitimate.
Posts about BDO are generating 100 times more interest than any other topic on firmspy!
The only sensible course of action for firmspy is to keep those hits rolling in by digging up more dirt on BDO.
Now do you see how stupid it is?
“Dear BDO Partners
Positions available. Three square meals a day provided. Prior applicants need not apply.
PKF”
ROFL, funniest post I’ve read in a while.
Something very odd going on with the voting on comments in this thread.