Shares in online estate agency portal Purplebricks (PURP) tumbled almost 20% to 25.6p after the company announced it would delay the release of its half year results due tomorrow after it discovered a ‘process issue’ regarding tenants’ deposits.
According to press reports the firm could be liable for claims totally tens of millions of pounds, sending investors scurrying for cover.
LETTER OF THE LAW
Under the 2007 Housing Act, Purplebricks is legally obliged to send tenants a letter within 30 days of their deposit being paid to confirm that their monies have been ring-fenced and are protected if the landlord goes bankrupt.
However, it is believed that since the company began operating in 2012 it has failed to send any of its tenants the legally required confirmation.
Failure to comply with the Housing Act means tenants could reclaim up to three times the amount of the deposit, which raises the spectre of a class action. Tenants have up to six years to claim for non-receipt of the letter.
One source puts Purplebricks’ potential liability at up to £30 million, whereas in its press release the firm said its own early provisional estimates suggested a potential financial risk in the range of £2 million to £9 million.
Shares in the company were already under pressure after it warned last month that earnings would miss its own forecast due to a continued shortage of sellers putting their houses on the market.
THE G IN ESG
Unfortunately, today’s corporate governance fiasco isn’t unique and seems to be becoming more common as the year wears on.
There was a similar embarrassing failure at Go-Ahead Group (GOG), which failed to repay the Department for Transport monies it received as part of the government’s Covid support programme and had its Southeastern train franchise removed as a result.
Last month, logistics firm DX (DX.) had to delay the publication of its annual report after its audit and risk committee flagged ‘a corporate governance inquiry relating to an internal investigation’, sending its shares down as much as 40% intra-day.