SFI Group today revealed £58.8m of "fundamental accounting errors" in its books and a loss before tax of £99m for 2003, as it finally reached agreement with its banks over its huge debts. Existing shareholders will end up with just 12.5% of the assets, as SFI's banks take 75% of the equity in a new holding company in return for writing off £83.4m of its £163.4m debts. The company, which owns 157 bars, including the Slug & Lettuce, Bar Med and Litten Tree chains, made an operating loss of £6.7m for the year to May 31 2003, down from a profit of £4.3m in 2002. Turnover rose 6.3% to £153.2m, but like-for-like sales dropped 8%. However, SFI's figures were hit by £92.1m of "exceptional" items, including a £58.2m impairment charge against the value of tangible fixed assets, £10m in professional fees and £10.3m provision for losses on the sale of properties after the year-end. It also announced £61.6m of pre-tax prior-year adjustments, including £58.8m relating to "fundamental accounting errors", with £25.8m of that for the year to May 31 2002 alone. SFI said the figures were so big, it would be pursuing a claim against its former auditors, Horwath Clark Whitehill. Existing SFI shareholders will receive 12.5% of any proceeds from litigation against HCW, with the rest going to help pay off the company's debts. One City analyst said: "The £58.8m of fundamental accounting errors is incredible, equating to 79% of 2001's £74.4m of group net assets. "The Financial Services Authority stated [in its investigation into SFI after its Stock Exchange listing was cancelled last year] that there was no evidence to suggest the breaches were deliberate. We have to ask, how can anyone achieve these margins of error accidentally?" The company's finance director, Tim Andrews, who joined SFI in July 2002 and was responsible for uncovering the holes in its accounts first announced in November the same year, has now handed in his notice. SFI said a new FD "has been identified" and it anticipated his appointment would be announced "shortly". However, Andrews will continue to help SFI with its litigation over the accounting errors. The reorganisation sees the creation of a new entity, SFI Holdings Ltd, with SFI's banks holding three quarters of the shares and the rest split equally between existing SFI shareholders and a management incentive scheme that will cover 60 to 70 of SFI's employees, including the executive chairman, Stuart Lawson, and two proposed new executive directors. SFI's current commercial director, Edward Lavelle, will join the board of the new company, subject to the approval of an EGM scheduled for May 7. In a statement, Lawson said: "The past 18 months have been a period of prolonged uncertainty. It is the potential within the business that has afforded us the opportunity to complete these exercises and put forward a restructuring proposal. We have now created the platform from which we can focus on the recovery of value for stakeholders."