Fraud Governance Case
van Eenennaam F., Michel H. (2021) Fraud Governance Case. In: Hilb M. (eds) New Living Cases on Corporate Governance. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-030-48606-8_18

Fraud Governance Case

The Imtech case is about a Dutch listed company that tried a restart and failed at that restart.

A couple of spinning questions are in the case among which.

? Why did the supervisory board and the management board dynamics prevent from taking appropriate actions?

? Why did the decentral local entrepreneurial model fail and to what extend were missing Corp governance systems to blame?

? What should the supervisory board have done to mitigate their company and personal risks?

Gerard van de Aast was appointed as a board member of the 150-year-old technical services provider Royal Imtech N.V. (Imtech) in December 2012. Imtech was the darling of the Dutch stock exchange AEX with an order book of 27,000 projects, 29,000 employees and revenue of approximately 5.5 billion euros. By April 2013, Van de Aast would replace Imtech’s CEO Van der Bruggen who had led the company since 2002 together with CFO Gerner.

Imtech’s targets for 2015 were revenue of 8 billion euros and an operational EBITA margin between 6 and 7%. Between 2001 and 2013, Imtech acquired an aggregate of 86 companies in the Benelux, Germany, Austria, Eastern Europe, the UK, Scandinavia, Turkey and Spain. Imtech Germany and Eastern Europe (Imtech Germany) was the most profitable subsidiary of Imtech. In 2010, Imtech Germany had an EBITA margin of 8.3%, revenue growth of 18% to 1.3 billion and an order book growth of 14%.

Imtech’s working capital position had been a point of conversation since August 2011 and reached a new actual record by March 2012: approximately 47% of trade receivables were overdue, of which 22% more than 2 months. From that moment onward, the audit committee, analysts and investors repeatedly expressed concerns about the working capital position of Imtech, the rapid growth of the order book and revenue (particularly in Germany) and the upcoming departure of the CEO and CFO of Imtech.

A 155 million euros mechanical and electrical contract for a Polish amusement park called Adventure World Warsaw (AWW) was approved of by Imtech Germany in July 2011. The contract grew to 680 million euros but subsequently failed to secure financing. In March 2012, Imtech had to provide guarantees for a quarter of the contract price of the project (147.6 million euros incl. taxes). Imtech Germany’s CEO suggested making an advance payment through a promissory note, an agreement between AWW and Imtech Poland that stated AWW would pay the guarantees.

Over the course of 2012, the promissory note expired twice without financing. In November an analyst from ABN Amro advised to sell shares, and, in the same month, Imtech’s accountant KPMG stated that the promissory note could not be included in the 2012 annual results as cash and cash equivalents. A second opinion from EY, requested by the board of management, stated the same in January 2013.

On the morning of February 27, 2013, Van de Aast received an overview of incurred costs on Imtech’s biggest project in history: 70 million euros had been spent on the 680 million euros AWW project. The highest amounts listed were payments to companies that did not exist according to Google, and all management involved in the project was not able to provide satisfactory answers on questions posed.

After a supervisory board meeting and an initial dive into the AWW issue, Van de Aast asked Rabobank for 200 million euros extra borrowing capacity and instructed Imtech Germany’s CEO to suspend the CEO and CFO of Imtech Poland together with 31 key employees. Imtech announced a write-off of at least 100 million euros on the Polish project, a forensic investigation into possible irregularities and the postponement of the publication of the 2012 results. Imtech Germany’s CEO and CFO were dismissed the day after.

A new CFO and two others were added to the board of management of Imtech. Two of the six supervisory board members stayed and two new members joined, while three other potential supervisory board members would join when future funding was set. KPMG stayed on as accountant to deliver the annual report, and a 500 million euros rights issue underwritten by ING and Rabobank was announced to strengthen Imtech’s equity, used for debt reduction.

Van de Aast prepared to meet with the chairman of the supervisory board to discuss further steps. What should he propose as his first steps? And what should be the role of the rest of the board of management, the supervisory board members, auditors and banks?

What Happened in Reality and What Are the Most Important Lessons Learned from this Case?


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