NMC / Finablr scandal deepens

If it were not for the general chaos in financial markets currently, events at NMC Health and Finablr would surely be one of the biggest business stories in the UK. Since last week events at both companies have taken a significant turn for the worse.
First let’s look at NMC. In the past week it has released two incredible RNS announcements. The first, on 10 March, revealed an extra $2.7bn in debt facilities that had previously not been disclosed to or approved by the Board. The second, released on 12 March stated that the ongoing review being led by Louis Freeh had “discovered evidence leading to suspected fraudulent behaviour in relation to some elements of NMC’s previous financial activities”. As a recap, some of the directors at NMC left the board weeks ago. These include CEO Prasanth Manghat, founder, vice-chair and major shareholder B R Shetty, and non-executive Abdulrahman Basaddiq. Over at Finablr, it’s been an equally terrible week. As the share price plummeted, on 12 March it released a statement that it was ’taking urgent steps to assess accurately its current liquidity and cashflow position’. It said it was being hit by combination of Covid-19, a credit downgrade for Travelex, a liquidity squeeze and adverse perceptions as a result of events at NMC Health. Then on 16 March came a triple whammy: the shares were suspended, the CEO Promoth Manghat stood down and the company announced it had been informed of “the presence of cheques (written by Group companies and dating back to before the IPO), which may have been used as security for financing arrangements for the benefit of third parties”. Finablr said that the cheques were estimated to be worth USD100m. Then on 17 March the board announced it had “engaged an accounting firm to undertake rapid contingency planning for a potential insolvency appointment with a view to maximizing value in the Group”.
There are, of course, some familiar faces. The ex-CEO of Finablr is the brother of the ex-CEO at NMC Health. And at the time of writing, the investor relations section of Finablr’s website still shows B R Shetty and Abdulrahman Basaddiq as directors. We assume, given the lack of regulatory announcements, this is accurate.
This combined failure is not exactly a good news story for the UK’s listing regime, and its willingness to let companies with questionable governance onto the main market. The government, FCA and others will have other, bigger problems to deal with in the immediate future. However this is an historic financial and governance failure affecting two companies, and it demands a proper response. Listing rules must be revisited. The protections for minority shareholders in controlled companies must be enhanced. The failure of external investors to challenge flawed governance arrangements also requires explanation. These events should be the subject of an inquiry by the BEIS committee.
The two companies were FTSE100 and FTSE250 constituents respectively, meaning many ordinary savers would have had exposure to them via tracker funds. A failure on this scale shames all of us involved in corporate governance, and must lead to changes in the UK’s approach.

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