The SEC recently brought charges against the CEO and CFO of UTi Worldwide Inc. in a settled enforcement proceeding. The Company was engaged in multinational freight forwarding and logistics operations. In connection with its freight forwarding business, the Company provided cash outlays for transportation costs, customs, duties, taxes, and other expenses. These disbursements temporarily consumed cash as the Company typically paid them in advance, and then obtained reimbursement from its customers through invoicing.
In September 2013, the Company began its U.S. rollout of a proprietary freight forwarding operating system called 1View. A cash manager shortly notified the CFO that 1View was properly recording transactions in the system but that it was not printing out invoices. Delayed invoices caused delays in payment.
The CEO and CFO were aware that the Company was taking steps to remediate the cash flow situation, including delaying payments to vendors. At one point a cash manager advised the Treasurer that US regional operations would run “out of cash tomorrow.” The CFO later met with the Company’s lead lender to request an amendment to the Company’s loan covenants. The lender agreed but advised there would be no further amendments.
In December 2013, the Company filed its third quarter 10-Q which disclosed material fluctuations in certain line items related to liquidity. The Company did not report any of the specific 1View billing problems that contributed to the changes. The Company did note in its 10-Q that it considered 1View ready for its intended use. The CEO and CFO signed the related Sarbanes-Oxley certifications included with the Form 10-Q.
Cash receipts improved in December and January but the improvement was not sufficient to meet debt covenants. The lead lender wanted to be paid off and refused to grant a waiver.
In February 2014, the Company filed a Form 8-K which disclosed for the first time details regarding the extent and causes of its liquidity problems. The Company also disclosed a planned offering of convertible notes and preference shares. In connection with the planned offering, the Company also noted its independent accountant had amended its audit opinion for the fiscal year ended January 31, 2013 to express doubt about the ability of the Company to continue as a going concern. The Company’s shares fell 30% from the prior days close.
The SEC found the CEO and CFO caused the issuer to violate Exchange Act requirements to file reports that contain such further information as maybe necessary to make the required statements not misleading. Additionally, Regulation S-K Item 303 requires registrants to disclose in the MD&A sections of required periodic filings “any known trends or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.” The SEC also noted that the CEO and CFO certifications violated the Exchange Act.
The CEO and CFO did not admit or deny the SEC’s findings. The Company was not named in the action.