The litigation focuses on Avaya’s repeated assurances that it has had effective internal controls over financial reporting (“ICFRs”) and that it has made significant progress in its business model transformation to a cloud and SaaS business model.
According to the complaint, Defendants made misleading statements and failed to disclose that: (1) Avaya’s ICFRs were deficient in several areas; (2) as a result of the deficiencies, the company failed to design and maintain effective controls over whistleblower policies and its ethics and compliance programs; and (3) the company’s deteriorating financial condition was likely to raise substantial doubt about its ability to continue as a going concern.
Avaya’s assurances came into serious question, beginning on July 28, 2022, when the company announced its board fired CEO James M. Chirico, Jr., revealed disastrous preliminary Q3 2022 financial results, and withdrew its 2022 guidance.
Then, on Aug. 9, 2022, Avaya announced that there is substantial doubt about its ability to continue as a going concern, it would not timely file its financial statements for the quarter ended June 30, 2022, its Audit Committee commenced internal investigations into circumstances surrounding the company’s financial results for the quarter, and the Committee commenced an investigation into matters raised by a whistleblower.
On Nov. 30, 2022, Avaya announced it would not timely file its fiscal year financial statements, revealed that its internal investigation is continuing, and admitted that it did not appropriately log the whistleblower’s email received by a member of its Board of Directors and did not convey its existence to management or to its outside auditor.
Finally, on Feb. 14, 2023, Avaya announced that it, along with certain of its subsidiaries, entered into a Restructuring Support Agreement and their commencement of Chapter 11 proceedings under the U.S. Bankruptcy Code.
