Hudson Investment Group’s $2.4 Million Property Receivable Sparks Auditor’s Disclaimer

Background to the Auditor’s Disclaimer

Hudson Investment Group Limited (HGL) recently found itself under the spotlight following the release of its 2024 financial statements. The company’s auditor, KSB, issued a Disclaimer of Opinion, a rare and serious audit outcome, highlighting significant uncertainties around a $2.4 million receivable linked to the sale of a commercial property at 43 Regent Street, Woolloongabba, Queensland.

The auditor’s concerns centered on the recoverability of this receivable, the legal ownership of the associated mortgage, and whether the company’s financial report could be relied upon as a going concern. Specifically, KSB noted insufficient evidence to confirm the existence and enforceability of the receivable, compounded by unclear trust arrangements related to the property.

Directors’ Response and Additional Evidence

In response, Hudson’s directors have strongly disagreed with the auditor’s Disclaimer of Opinion. They have provided additional documentation, including evidence of a registered second mortgage over the Woolloongabba property and a full provision against the receivable in the financial statements, despite their belief that the debt will be fully repaid by June 30, 2025.

The directors also submitted updated cash flow forecasts excluding the receivable and confirmed that no director holds any interest in the property, emphasizing that the sale was conducted at arm’s length. Despite these efforts, the auditor has maintained their position, underscoring the material and pervasive nature of the uncertainties.

ASX’s Formal Inquiry and Compliance Concerns

ASX Compliance has now formally requested detailed responses from Hudson Investment Group, probing whether the auditor’s Disclaimer of Opinion and related information are material to the company’s securities price or value. The regulator is also seeking clarity on the timing of Hudson’s awareness of these issues, the adequacy and timeliness of disclosures made to the market, and the directors’ basis for declaring the financial statements compliant with accounting standards despite the auditor’s reservations.

Moreover, ASX has questioned why the Annual Report was not lodged immediately after the auditor’s report issuance and why the auditor’s report was not updated following additional procedures on subsequent events. The company must also confirm its compliance with continuous disclosure obligations under ASX Listing Rules.

Implications for Investors and the Market

This situation places Hudson Investment Group at a critical juncture. The auditor’s Disclaimer of Opinion raises red flags about the reliability of the company’s financial statements and its ability to continue as a going concern. Investors will be watching closely for Hudson’s forthcoming responses to ASX and any further disclosures that clarify the status of the receivable and the company’s financial health.

While the directors’ confidence in eventual debt recovery offers some reassurance, the unresolved audit issues and regulatory scrutiny could weigh on market sentiment and the company’s access to capital. The unfolding dialogue between Hudson, its auditor, and ASX will be pivotal in shaping the company’s near-term outlook.