Theo Theodoulou
Chair of Kreston Global Audit Group and Audit and Assurance Director at Kreston Ioannou and Theodoulou.

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Theo is a non-executive board member of the Cyprus Securities and Exchange Commission (CySEC), and leads the Audit Committee of CySEC. In 2018, he was appointed as the Finance Director of one of the biggest football clubs in Cyprus, Anorthosis Famagusta (Football) Public Limited.

Theo’s portfolio covers M&A due diligence, investment appraisals, forensic audit, internal audit and risk management advice, as well as corporate governance best practice.


Can auditing avoid shareholder disputes?

April 1, 2022

Recently, one of the leading UK restauranteurs, Corbin and King, was driven into administration by the majority investors, following an ongoing shareholder dispute. This has resulted in Corbin and King losing control of the group in a late-night auction, where Minor International bought the business.

The dispute originated from the fundamental difference in the shareholders’ perception of whether the group was a going concern business or not. It raises an interesting case study into what extent the audit process could have been able to prevent a dispute from arising. 

The independent auditor of the group cannot intervene in shareholder disputes, however, under international auditing standard 570 an auditor has the responsibility. An auditor must question the appropriateness of the management’s use of the going concern assumption in the preparation of the financial statements. The auditor must then conclude, based on the audit evidence, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern considering also the implications this would have on the auditor’s report.

The challenge of the going concern assessment for the auditor of Corbin and King becomes greater taking into consideration the unprecedented times of the pandemic, particularly in the food and beverage industry, where many businesses throughout the world did not manage to survive and others are still facing the consequences.

The questioning from the auditors of Corbin and King on the management’s assumptions could be a form of leverage to potentially diffuse or avoid shareholder disputes, but this alone could potentially not suffice.

Audit evidence required that could put some form of leverage on the management

Financial projections and budgets

The auditor should have been provided with cash flow projections and budgets covering at least the period used by the management on their going concern assessment at a minimum, but not limited to 12 months as per international accounting standard 1. The financials should consider how the current events impact the company’s operations and projected cash flows. The auditor should be able to assess the assumptions used and stress the scenarios provided especially the downside scenario.

Has the management of Corbin and King reflected in their projections the impact of lockdown events? Have they reviewed projected covenant compliance in different cash flow scenarios? In case of non-compliance, how did this impact their current and non-current liabilities? Have they properly disclosed the liquidity risks? These and many other questions would be a form of leverage used during the audit process.

Looking for key events

The auditor should look for significant events and evidence that could support the management’s assumption ongoing concern assessment or question these assumptions.

In the case of Corbin and King, a start would be the board minute resolutions and decisions of the board of directors and to focus on the claim from the Minor group that the company was unable to meet its financial obligations. It appears that the company was in negotiations for financing with a US-based investment fund Knighthead Capital Management. There may have been proposals by the majority shareholders to recapitalise the company, something that could have had an impact on the dilution of existing shareholding and potential issues in the decision making of the company. Was this evidenced during the board meetings? What was the reaction of executive and non-executive members of the board? What were the decisions throughout this process and how do they reflect the stand of the shareholders?  Were the decisions supported by financial plans and projections?

In addition, the company appeared to be in a fall with their insurers AXA over losses incurred during the pandemic and entered into litigation against them. The auditor would be able to get a legal update directly from the legal advisors and understand the possibilities of winning the case and whether potential benefits would flow to the company and in what timeframe. In this case, what were the management’s reactions and feedback? Has this been properly accounted for in the financial projections?

These and potentially other key events while assessed by the auditor require also the management to enter into an exchange of opinions and discussion during the audit process and could be used as a form of leverage on the shareholders’ dispute.


During the audit process, the auditor will perform various procedures and will request evidence as well as will question assumptions provided by the management on the going concern assessment. The overall process could be considered as a form of leverage and could trigger a mechanism that could potentially diffuse or avoid potential conflicts however this is not considered a principle and should not be an expectation from an independent external auditor.

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