Bonnier takes auditors to court after 'wasting' £90m under Johnson

Bonnier Books UK is suing its former accountants, Haysmacintyre LLP, alleging it was negligent in auditing the financial statements of the publisher's UK arm under ex-c.e.o. Richard Johnson, costing the company more than £90m.

Haysmacintyre LLP was hit with the £90m negligence suit after signing off on accounts that had been "materially overstated" by Johnson, who was later dismissed for gross misconduct, according to the claim filed in the High Court of Justice by Bonnier Books UK Group Holdings and four of its subsidiaries on 21st January.

Under Johnson-a controversial figure during his nine-year tenure as group chief executive between 2009 and 2018-Bonnier Publishing embarked on a strategy of rapid expansion. Guided by statements for the financial years ending 31st December 2013 to 31st December 2016, according to the claim, almost £85m was spent on expanding the business internationally between September 2014 and February 2018.

Bonnier Books’ claim reveals that it bought children’s publisher Igloo Books for £16m, romance publisher Totally Entwined for around £500,000 and John Blake Publishing for approximately £900,000.

Furthermore in its bid for growth, in the three years precipitating Johnson’s departure, the claim states that over £8m was spent on author advances expanding the company’s adult trade non-fiction business, through Blink Publishing, and over £9m on advances expanding the company’s adult and children's trade fiction publishing, through Bonnier Zaffre (then Hot Key Books). High-profile poaches from rival companies had included Wilbur Smith, who, in June 2017 then aged 84, left HarperCollins in an eight-figure deal for eight new books.

Such a growth strategy was "in fact flawed, loss-making and unsustainable", according to the documents filed, and the claim argues that this would have been discovered far sooner, even prior to the strategy’s initial approval in September 2014, were it not for negligence in the preparation of the audits on the part of Haysmacintyre.

The firm is accused of failing to "perform appropriate audit procedures" of its 2013-2016 financial statements, allegedly confirming that the publisher’s accounting policies were “compliant and in line with policies at other UK publishing businesses”, even after concerns were raised in August 2016 that the cashflow of Bonnier’s UK and International business was “out of alignment” with profitability (EBITA).

The firm is furthermore criticised in the claim for not applying appropriate “professional scepticism” in its work - “including in circumstances in which there was a clear and obvious risk of management dishonesty, misstatement and/or fraud”.

Succeeded by Jim Zetterlund, Johnson’s contract was terminated in February 2018 following write-offs of approximately £22.3m for the UK and International Business as a whole and after it transpired the business would not be making a profit of £5.8m in 2017 but in fact a loss of £2.5m, according to the claim. An investigation into his conduct ensued, as multiple allegedly irregular payments came to light, and Johnson was dismissed for gross misconduct in March 2018, according to the suit.

Although not named as a defendant in the suit, the claim states that as well as failing to implement appropriate accounting policies, Johnson misappropriated sums of more than £3.5m. The claim alleges Johnson made a number of payments to himself outside of his contract and/or fiduciary duties, among which were, between September 2014 and February 2018, more than £1.9m for consultancy services “purportedly carried out” and more than £1.7m in bonus payments. Also listed are alleged payments adding up to £80,000 in family holiday expenses; more than £70,000 on “dilapidation” work in the town where he lives; and “unjustified” redundancy packages, made to Tony Cleugh (£115,127), and to family members (over £14,000) in 2017. Thousands were allegedly also spent on elite helicopter operator services and, in one year, more than £60,000 on the staff summer party.

In relation to the legal proceedings against Haysmacintyre LLP, a spokesperson for Bonnier Books UK said: “We can confirm that Bonnier Books UK and certain of its subsidiaries have filed a claim against its previous auditors, Haysmacintyre, in respect of the negligent preparation and conduct of the audit of their financial statements for the financial years 2013 to 2016.

“As the matter is now the subject of legal proceedings we will not be commenting further.”

The publisher is claiming damages for the sums it would not have spent or had misappropriated “had Haysmacintyre not breached its duties". These comprise: the £84.9m in “wasted expenditure” on its growth plan; the £3.5m allegedly misappropriated by Johnson; £950,000 spent settling a tax bill; and £2.3m spent on professional fees.

Haysmacintyre has said the claim is "without merit" and "will be robustly defended". The practice's chairman, George Crowther, told The Bookseller: "Dealing with civil claims, whether or not these are well-founded, is unfortunately part and parcel of running an accountancy practice. We have instructed solicitors and counsel. The claim, we are advised, is without merit and will be robustly defended. Considerations of privilege and confidentiality mean we are unlikely to be able to comment further."

Bonnier Books UK confirmed to The Bookseller that there is no separate litigation against Johnson.

Commenting on the claims made in the lawsuit against Haysmacintyre, Johnson said: "Total news to me. No one has ever mentioned a thing about that to me and I would love to know where the £3.5m is because I haven’t got it and never had it! It is total nonsense. The reasons I left Bonnier are nothing to do with money and Sweden know that as well as I do. I am 'gagged' from saying anything more than that and have been for years. I reached a settlement with Bonnier in the summer of 2018 which resulted in a payment to me and that’s the last time I have heard from them."

He added: "The 'create the hype' and overall growth strategy were approved at the highest level in Bonnier Sweden as were the accounting policies, which in fact originated from Sweden itself in the first place. I wrote about all that in my book Show Me Your Medals. We had endless board meetings and discussions about it all. I honestly don’t know what else to say other than I stand with Haysmacintyre, I can’t see what they did wrong at all during that period, my colleagues and I certainly did not. If we did, most of the senior board in Sweden have a lot to answer for because they certainly understood and approved all major decisions and policies."