Among the myriad clues that something was wrong at Quindell (LSE: QPP), by far the biggest hint was its lack of cash. While the company kept booking nice-looking increases in profits, its accounts receivable and its accruals were skyrocketing.
Never mind, insisted the Quindell faithful, the cash is going to come rolling in soon and by the fourth quarter of 2014 well be making all the naysayers look foolish and laughing at the shorters losses.
Impressive boasts
And it was as recently as 13 October that Quindell was boasting of adjusted operating cash flow for Q3 significantly ahead of expectations and guidance with c.9.4m inflow compared to original guidance of breakeven, and touting its consistent track record of cash collection.
In fact, we were told at the time that Quindell anticipated second-half operating cash flow of c.30m to 40m, to be followed by up to 100m inflow in the first half of 2015. And that was without significant reliance on its much-anticipated noise-induced hearing loss claims, which the firm said would add potential upside in 2015.
But very few of us were convinced by Quindells grandiose posturing.
And those who did still believe the story were dealt a severe blow on 8 December when Quindell released an RNS that is likely to go down in stock market folklore:
The growth in cash receipts in the final quarter of the year has not been as significant as previously anticipated, said Quindell.
Auditors called in
If that bombshell was not enough, the trading update went on to tell us that in conjunction and consultation with the Companys bankers, advisers and auditors, PwC is being engaged to carry out an independent review of Quindells accounting policies and cash generation expectations.
Those who did not read in conjunction and consultation with as meaning at the insistence of Quindells bankers were few and far between.
And if you still think this was a positive update and that Quindells professed beliefs in its own health and wealth have any value, heres the killer:
The Board believes, taking into account the Groups cash reserves and continued access to its three credit facilities, that the Groups resources are sufficient to deliver on managements current plans.
I see no other way to read that than as an admission that continued access to its three credit facilities is all that can keep Quindell afloat.
Is that a fat lady I hear?
What all this surely means is that the banks extending credit to Quindell are getting cold feet and have themselves called in PwC to check the books I see no other realistic explanation for a company calling in an independent auditor to review its books in this way.
And if the banks dont like what PwC says, theyll surely pull the plug.
How long will it take? Its hard to say, but it could easily be only a matter of weeks now.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.