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Drake & Scull is escalating its legal attack against earlier management, with a case filed in the Dubai Courts. At its heart is how the Dh830 million value came about. Image Credit: Shutterstock

Dubai: The Dubai-based engineering firm Drake & Scull International has filed a case in Dubai Courts against the previous management related to a Dh830 million evaluation at the time of its IPO in 2008.

The Dh830.46 million was included in the company’s asset items – but there was no detailing of how this value was reached and on ‘what basis the value of goodwill was calculated’. In fact, the value exceeds by six times the acquired tangible assets, Drake & Scull states in a DFM update.

Tellingly, ‘no documents were found to support this inflation or to prove its validity’.

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The filing of the case comes at a critical time for the company as it awaits a local court’s verdict on whether it should go into liquidation under the UAE’s Bankruptcy Law. Drake & Scull’s accumulated losses are at Dh5 billion plus.

Effectively, the current management has two legal processes to deal with – one, to stave off being declared bankrupt and, two, try and press its financial claims against the earlier management.

A June hearing

On the Drake & Scull restructuring plan, the Cassation Court will hear submissions on June 27. A detailed plan to turn around the company has been provided.

Legacy issues

Before its financial issues came to a head in 2018 – when it was finally announced that accumulated losses were around Dh5 billion and not what had been reported up to that point – Drake & Scull has had its back to the wall. On the operational side, it tried to find ways to restructure it dues and their payment to lenders and creditors.

Simultaneously, an in-depth investigation was launched by the authorities in Abu Dhabi. The Public Funds Prosecution’s report is what details the Dh830 million ‘phantom’ valuation. This led to the inflated value at the time of the company going public.

This ‘misled investors that the founders had invested with an amount of Dh980 million (of) in-kind shares, with a difference increment of Dh830 million’, Drake & Scull said in the statement. “This is the amount that the company is claiming.”