High Street Group has finally filed the December 2018 accounts for its holding company, High Street Grp Limited [sic].

Having achieved the rare feat of being overdue with not one but two sets of accounts for the same company, High Street Group remains overdue with the High Street Grp accounts for 2019, and 2018 and 2019 accounts for High Street Commercial Finance Limited.

I will start by clarifying that the focus of Bond Review is on High Street Group as an investment scheme, specifically its loan notes promoted to the public by various unregulated introducers.

I’m interested in what the accounts tell us about the progress of those investments, not so much on High Street Group building the biggest tower in Newcastle or its other projects.

So the focus of this article is on what the holding company’s 2018 accounts tell us about the progress of the investment scheme.

Here’s what immediately jumps out.

PWC resign as auditors

During HSG’s attempt in the High Court to see off an investor in its High Street Rooftop subsidiary, HSG told the court in July 2020 that the group was undergoing an audit by PWC. On 4 September 2020 HSG filed “various bits of financial information” but no audited accounts, stating that PWC had been unable to supply anything “for reasons connected with workload and Covid-19”. What Covid-19 had to do with HSG’s 2018 accounts falling overdue in September 2019 was never made clear.

That same month, PWC resigned as auditors and the job was taken over by top 15 accountancy firm Haines Watts.

Auditors issue adverse opinion

Haines Watt’s report is headlined “Adverse Opinion” and states:

In our opinion, because of the significance of the matter described in the basis for adverse opinion section of our report, the group financial statements

do not give a true and fair view of the state of the group’s affairs as at 31 December 2018, and of the group’s loss for the year then ended;

have not been properly prepared in accordance with IFRSs as adopted by the European Union; and

have not been prepared in accordance with the requirements of the Companies Act 2006.

An “adverse opinion” is pretty much the most damning rating an auditor can give. So what were the beancounters upset about?

High Street Group dumps borrowing arm from group company

At issue is High Street Group’s disposal of High Street Commercial Finance Limited.

High Street Commercial Finance Limited is the company that borrowed money from the investors in the bonds looked at in my original review from 2018.

On 2 January 2019 – and this is going by HSG’s filings with Companies House – High Street Group sold HSCF to HSG owner Gary Forrest. So as of this date, it no longer forms part of the High Street Group represented by High Street Group Limited.

It did however have the effect of removing £50 million worth of liabilities from HSG’s balance sheet.

It also meant that HSG could bank £50 million worth of “profit” from the disposal of the subsidiary. This turned what would have been a £24.5 million loss into a £25.4 million profit for the year.

A note to the accounts showed that HSCF as an individual company made a loss of £20.3 million in 2018.

Haines Watts didn’t seem to have a problem with transferring HSCF’s lake of red ink to the personal name of Gary Forrest. Their issue, according to the auditor’s report, is that HSG have tried to bank this in the 2018 accounts as occuring on 31 December 2018. The auditors think it happened on 2 January 2019, in the 2019 financial year. Companies House filings appear to back the auditors up on this.

What does this mean for High Street Group investors?

It should be noted that High Street Group’s booting out of HSCF and into the personal arms of Gary Forrest doesn’t change anything in terms of what HSCF owes its investors, or any claim they have over the wider group assets.

Introducer promotions for High Street Group’s loan notes in 2018 stated “Investors will benefit from a debenture over High Street Commercial Finance Limited along with a Corporate Guarantee from the group of companies therefore providing the highest level of security possible”. Putting the third-party misselling to one side (“highest level of security” indeed), if an investor had a corporate guarantee from the HSG group before HSCF was booted out of the group structure, they still do – that can’t be unilaterally removed by HSG.

As for how likely HSCF itself is to repay investors, that’s still unclear as it remains a whopping 16 months overdue with its 2018 statutory accounts (and the 2019 accounts as well). Presumably that’s Haines Watts’ next job.

But £50 million in net liabilities is clearly a lot of red ink. How much was invested as at 31 December 2018, and how much is at risk in HSG today, is unclear, in part due to HSG’s continued failure to file its 2019 accounts on time. Note that £50 million is the net liabilities; how much has been invested is unknown (as £50 million is the figure for investors’ loans, plus all other liabilities, minus any assets in HSCF).

Borrowing switches to High Street Group plc

Judging by a more recent loan note brochure, HSG is no longer issuing bonds via High Street Commercial Finance Limited and has switched to a new shell company, High Street Group plc.

In an email to investors sent December 2020, an HSG representative claims “we have achieved our PLC status.”

Incorporating a company with PLC in its name is not actually an achievement. The main difference between forming a PLC and a bog-standard “Ltd” is that a PLC requires £50,000 in share capital. Which for HSG is peanuts.

What is an achievement for a PLC is to float on a regulated stock exchange (an Initial Public Offering or IPO). The same email claims HSG is aiming to do so (or be bought out) in 2-3 years. An IPO requires jumping through numerous regulatory hoops and convincing first investment banks and, ultimately, the wider market of fund managers and individual investors that the company is a sound investment. It also requires filing regular accounts on time. So clearly HSG has some work to do.

High Street Group plc was incorporated in April 2020 (with that minimum £50,000 of share capital). Due to its young age it will not be due to file accounts until October 2021.

So what do we know?

The belated High Street Grp accounts won’t give much reassurance to HSG investors hoping for some insight into the likelihood of the company repaying their loans. The main facts are:

  • As a group, HSG would have continued to be heavily loss-making in 2018, with a loss of £24.5 million in 2018 (£23.3 million in 2017)…
  • …were it not for dumping the company that borrowed tens of millions from investors in its loan notes, by transferring it to the personal name of HSG owner Gary Forrest.
  • Except the auditors don’t think it gets to do this in 2018. Rather than defer to the professional opinion of the people it hired to get its books in order (after all, the dispute with its auditors is not whether it can jettison liabilities in this way, but the year in which it puts it in the accounts), HSG has taken the dramatic step of filing accounts with an Adverse Opinion.

All that red ink would be worrying enough on its own. When the holding company dumps the company that owes you money out of the group by transferring it to the owner for free, and starts taking money from new investors from an entirely different company, it’s even less promising.

HSG seems to view its own subsidiary as toxic. There is no other word for a subsidiary with £50 million net liabilities that gets dumped from the corporate group for no apparent reason other than to improve the parent company’s profit and loss account and balance sheet. And it literally couldn’t get rid of it fast enough. Specifically, 2 days not fast enough to avoid a black mark from its new auditors.

If High Street Commercial Finance ever does get round to its 2018 accounts, it’ll be covered here.

I’m aware that High Street Group has been circulating unaudited accounts for more recent periods, but until such time as they’re audited and filed with Companies House (at which point the directors become legally liable for their accuracy), there doesn’t seem much point dwelling on them. Plus they’re not public documents.