Home > Accounting wrongdoing, Board Performance, Spain > PESCANOVA, a fantastic firm, in big trouble

PESCANOVA, a fantastic firm, in big trouble

In 1931, a small entrepreneur from Galicia, (Northwestern Spain) died. He had been a meat and cattle dealer. His three sons continued the father`s business, and were very successful, partly because of their innovations, such as the idea to freeze meat for transportation to the market.

They invested the returns in other businesses, as the one we will refer to in this post, Pescanova.

Pescanova is an industrial fishing firm, which was one the first to introduce freezer vessels in the activity in the 60`s. They afterwards bought an old transatlantic boat, which was renewed into a fish processing floating factory. In recent times, it has developed a new but related activity, aquaculture, (they grow turbot, shrimp, and salmon).

It is present in the five continents, it employs more than 8000 people worldwide, it integrates vertically more than 160 companies, it is adapted to new times, (aquaculture already accounts for a third of their Ebitda), and it has acceptable profitability, (as per 3rd quarter results, see here:


Many analysts had been recommending purchasing the company stock, as it had a promising business mix, international exposure that was helping the business grow, and Spanish operations that appeared to be very resilient to the crisis, (in fact revenue was increasing slightly).

But then, the date they should have sent the audited accounts for 2012 to the Spanish SEC equivalent, -www.cnmv.com-, (february 28th) they din`t, and instead they communicated that they would not be sending them until they sold certain assets, or until they renegotiated debt with banks. This second option is followed by the company, (March 1st).

What happens next?

Information is leaking little by little: apparently a larger debt volume exists than the volume registered until now in the company books, and it appears that the complex corporate structure, could have helped hide the high leverage.

On March 12th, the company states that discrepancies had been found between actual debt levels and the volume recorded in the books.

On March 14th, an extraordinary board meeting is held, (after some shareholders and their directors asked it), where the Chairman exposed the firm situation, the need for a reconciliation between debt as recorded in the books, and the real debt volume the company had acquired.

A notice is sent to the regulator, where it is stated the board that day had unanimously agreed to pursue the path to renegotiate the company debt. Slightly afterwards, some board members sent a notice denying such unanimity. They state that once the auditors determine the actual debt value, a board meeting was to be held. The company then answered, (again via notice to the Sec equivalent), that the board decided to pursue the renegotiation, (avoiding to give more details on the eventual vote), and that no board meeting had been called yet.

The same day, banks have built a commission that would be charged with mapping all the company debt, (they will retain a financial advisor and an audit company).

What can be said about the company corporate governance? according to the Corporate Governance Report for 2011:

–         The board is made of twelve members, only two of them independents. One of them was recently named Audit Committee Chair. The rest are owners` representatives, except for the Executive Chairman, also owner of a 14% stake.

–         There is no Committee responsible for Corporate Governance: the board itself has that role.

–         Independents are not a third of the total. Directors are mostly shareholders or their representatives.

–         There are not enough tools to counter the power of the main executive, and only board and general assembly are said to be responsible to execute checks and balances, (just a formal say, clearly).

–         There is no relevant role for independents in calling the board, including points in the agenda, evaluating the board, or taking care of the external directors`views.

–         Audit committee met only twice in 2011; the Compensation and Recruiting committee, three times. The AC is not charged with wistleblowing activities, that have not an established and protective channel.

–         There are no limits to the number of directorships they can hold.

–         The board is responsible for (among other things) the financing and investing policy, the corporate structure of holding and subsidiaries, and risk assessment and control.

–         The Audit Committee is responsible for mapping risks, assessing them, controlling them, including: the perimeter. There is an Internal Audit function.

–         Significant holdings include up to 18.931% by non-directors, and 38.276% by directors, thus a total 57.206%.

What did the regulator do?

The regulator has opened an investigation for possible market abuse activities by the company, stemming from the fact that the accounts may have been wrong, and eventually from insider information related transactions.

Of course, it has urged the company to deliver its accounts, but the delay had to be extended, as the company is finding great difficulties in doing so.

Some news in the Press.

News in the press point to a certain subsidiary or subsidiaries, only 49% owned by the Pescanova group, as being involved in certain transactions that stayed out of sight, as the audited consolidated accounts did not include all assets and liabilities for these companies. It appears, according to other sources, that those companies helped the company hide the debt. The company nonetheless, states these companies developed normal activities.

The company auditor (BDO) and the auditor named by the bank group (KPMG) are said to be trying to unveil the truth, so that the company can deliver its reshaped books to the Cnmv, which should take place sometime before the end of March.

On April 4th a board meeting is held, for 13 hours, in which the situation is analysed; as a result, the company issues a notice to the CNMV, (you can see it here http://cnmv.es/Portal/HR/verDoc.axd?t={d615f08f-4665-4dd8-956e-353e109d0add}, where it states: first, the company, given the difficulties in achieving an agreement with creditors, declares voluntarily a bankruptcy situation, (which entails it should prepare an agreement proposal to creditors which will assure the company`s survival); second, the company has decided to ask the judge to revoke the auditor`s nomination and name a different one.

According to the press, the auditor, BDO, did not receive in the last days enough and timely information, so that the company has not been able to provide its accounts, as the auditor would have rejected to sign them. In fact, the company in his statement did not include information as to what the actual debt level is. Also according to the press, Pescanova would be preparing to sue the auditor.

The CNMV has issued a press release on April 5th in which it informs that it has opened a procedure, that could end with a fine being imposed to the company, for having failed to send the second semester accounts and complementary information, required by the Cnmv in two previous deadlines, the last ending on April 5th. That gives time to the company until April 11th.

The situation is worsening day by day, and as the press info show: the auditor –BDO- is still working, but there is not a good relationship with management, so they are probably not receiving much openness from the company. Management is still in place, (no info has been released regarding the internal auditor, CFO, or any other), not a single director has been dismissed, the Executive Chairman rejects to leave, the banks have apparently rejected to offer any help whatsoever before having access to 2012 accounts, (as they fear there is even much more debt that the level published in the press), and the company apparently has only a few days of liquidity.

As one of shareholders points out in its annual accounts, an urgent and not explained cash need in February was the red flag two shareholders raised, in the board that should have  (and did not) approve the 2012 accounts. This is very clarifying, but information goes out very slowly.

To be followed and updated…

Just a small update:


–         The Executive Chairman sold half his 14% stake months before the problem was unveiled, in order to provide cash to the company: he obtained € 30 million, but gave a 9 million loan to the company. He did not notice that to the market, as he should have done. Of course, after the facts were discovered, the stock price plunged, and trading was suspended: the rest of shareholders are stuck.

–         On April 15th the company has filed for bankruptcy.

–         On April 15th, the auditor, BDO, rejects that any cause exists for its dismissal as auditor, and demands the company to provide the required information.

–         On April 15th the company has not provided to the Cnmv the Second Half 2012 accounts with enough transparency and sound accounting standards.

–         The Spanish Sec equivalent, http://www.cnmv.es, has opened an inquiry, and has decided to follow-up the tasks of KPMG, as a forensic auditor retained by the company.


Nobody explains yet the origin of the liquidity shortage and the reason for such an extraordinary unknown debt level, what the debt was used for, and so on.


To be updated…


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