Frasers was the largest shareholder in Studio and has just bought the failing company out of administration.
Following the takeover, the Mike Ashley owned Group is now demanding the urgent reform of corporate governance of listed companies and has called for all collapses to be investigated, with criminal penalities to be applied where necessary.
Frasers Group, which was the largest shareholder in Studio, has said that UK corporate governance needs urgent reform so those involved in business failure would be investigated and sanctioned. In a stock exchance announcement, the company said: “If the regulation of business is to have any purpose at all it should be in ensuring that businesses and jobs do not simply disappear overnight, damaging lives, eroding shareholder value, and tarnishing the reputation of the UK business system as a whole.”
The Group had “long advocated” that Studio was in need of a strategic review to protect shareholder value and wrote to the company’s management to voice its concerns that it was taking a conservative view on accounting estimates and judgements.
Frasers claimed that Studio had “buried its head in the sand whilst the world around it changed”. It also laid the blame for its demise on its management team. Owning almost 30% of Studio prior to its collapse, Frasers voted against the re-election of Studio’s chief financial officer in 2019, although the support of 58.06% of shareholders meant that he was re-elected.
“It is clear that the fundamentals of its business were, at best inadequately scrutinised by its board and/or advisors to the business, or at worst, deliberately concealed as the business entered its death spiral,” the Group said, adding that Studio’s claim that it needed a £25m loan to save it from collapse was “a gross underestimation of the scale of the issues facing the business”.
All listed businesses that collapse should be investigated, according to Frasers, which also suggested that fines and criminal penalties should be imposed on individuals found complicit in, or responsible for, wrongdoing that contributed to the company’s failure.
The statement added: “Frasers does not see the failures of listed public companies such as Debenhams, Goals and Studio Retail Group as isolated incidents but rather as manifestations of systematic governance failures and a lack of corporate and individual accountability.”
Frasers Group said that the Financial Reporting Council, Audit Reporting and Governance Authority, and Financial Conduct Authority needed both increased enforcement powers and resource to police the corporate governance of listed companies and urged them to “act decisively as a deterrent to others.”