A breach could leave Evode, which is fighting off a pounds 90m bid from Wassall, liable to repay pounds 27m of redeemable preference shares.
Mr Simon said: 'We are not close to breaking a second covenant.' But seconds later Mr Pratt said Wassall was right.
He said the near-breach was due to a change in accounting rules, in particular by the requirement to write off goodwill on disposals.
He said the company had made no arrangements for repaying the redeemable shares, which are repayable from 1996 assuming no breach before then.
In addition to these redeemable preference shares, Evode has convertible preference shares in issue. It has already admitted it is in breach of covenants relating to the convertible shares but said US holders of these shares had waived their rights to appoint a director.
Covenants on the redeemable shares would be breached if Evode's profit-and-loss reserves were pounds 1.2m lower than on 3 October when they stood at pounds 15.6m.
Evode says its borrowings account for 50 per cent of its shareholders' funds. But Wassall says they would account for 166 per cent of shareholders' funds if the redeemable shares were treated as debt instead of equity. Treating the convertibles as debt would wipe out the company's net assets, leaving the ratio of net debt to shareholders' funds at infinity.
The near-breach allegations were included in Wassall's latest circular to shareholders. Mr Pratt said it contained 'nothing new'.
Wassall highlighted Evode's cut in capital spending from pounds 9.4m to pounds 3.7m in the year to 3 October. Mr Pratt said this was because 'we have all the capacity we need. We did not need to expand.'
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