Save content
Have you found this content useful? Use the button above to save it to your profile.
Comet Kidderminster
Creativecommons_P_L_Chadwick

Deloitte hit with record £1m fine for Comet liquidation

by

Deloitte has been severely reprimanded and ordered to pay a record insolvency penalty of nearly £1m for its failures in handling the administration of collapsed electrical goods retailer Comet in 2012.

31st Jan 2020
Save content
Have you found this content useful? Use the button above to save it to your profile.

An ICAEW disciplinary consent order issued this week concludes the five-year investigation into Deloitte’s administration of Comet and the conduct of its insolvency practitioners. The Big Four firm agreed to pay the £925,000 fine and the ICAEW’s costs of £890,000.

The ICAEW rebuked Deloitte for failing to comply with its code of ethics requirement that “accepting an appointment does not create any threats to compliance”. The disciplinary report highlighted Deloitte’s failure to follow its engagement acceptance policy and procedure for taking on clients, which in this case failed to consider the “potential threats to the compliance of the administrators”.

Two former Deloitte partners were also hit with fines for their involvement as joint administrators of the Comet liquidation. Neville Kahn, a former managing partner at Deloitte, was handed the biggest fine of £50,000 and was severely reprimanded. His fellow joint administrator and former Deloitte partner Christopher Farrington received a lesser reprimand and was ordered to pay a fine of £25,000.

Both executives resigned from the Big Four firm in 2018, with Kahn setting up turnaround fund Blandford Capital and Farrington joining financial advisory firm Resolve. Nicholas Edwards, the third administrator, was not part of the ICAEW disciplinary process.

The two insolvency partners were pulled up on five complaints where they did not comply with the “fundamental principles of objectivity” and “professional competence”.

Both executives accepted that they did not take any “reasonable steps” to identify threats to their objectivity that might arise during the course of the appointment.

The investigation highlighted their failure to investigate decisions taken around Comet’s asset-backed lending facility agreement and the steps the trio took to probe - or not in this case - the acquisition of Comet’s parent company, Hailey Acquisitions Limited.

Kahn and Farrington also failed to create sufficient written contemporaneous records that explained the steps taken and the conclusions they reached.

Duncan Wiggetts, executive director of professional standards at ICAEW, said in a statement: “Following the opening of this investigation, we conducted a thematic review of engagement acceptance procedures in the larger firms engaged in major insolvency appointments.

“This led, in 2016, to Deloitte making changes to improve its processes on insolvency appointments, which, if followed, should significantly reduce the likelihood of a similar issue happening again in the future.

“This case should send a strong message to insolvency practitioners and their firms of the importance of demonstrating the highest standards and putting in place appropriate and robust processes to ensure compliance with codes of conduct.

“We will not hesitate to investigate and take robust action where we consider there is evidence of conduct falling short of that which is expected of our members and member firms.”

The Big Four firm came under fire last year when the investigation revealed the firm pocketed more than £15m in fees from the Comet liquidation. Deloitte also earned £1.4m advising Opcapita, backers of Hailey Acquisitions, before Comet went bust in 2012.

Reacting to the news that Deloitte partners charged up to £1,125 per hour for insolvency work, accounting academic Prem Sikka told AccountingWEB: “This industry is out of control.”

The Deloitte partners were appointed administrators of Comet November 2012. The collapsed retailer dodged administration the previous year when it was sold to OpCatita for £2.

Comet closed the doors of all of its 240 stores in December 2012 after 80 years in business, laying off all its employees and costing the government £49.4m. In 2014 former Comet employees were compensated in a £26m taxpayer-funded payout after an employment tribunal found Deloitte did not properly consult them on redundancy options as legally required.

Replies (7)

Please login or register to join the discussion.

avatar
By User deleted
03rd Feb 2020 08:16

Connected to the matter is the case Khan v ICAEW [2018] EWHC 1378 (Ch) https://www.oliverelliot.co.uk/2020/02/02/comet-confidentiality-conflict/

Thanks (0)
avatar
By [email protected]
06th Feb 2020 11:40

From the ICAEW statement above

“This led, in 2016, to Deloitte making changes to improve its processes on insolvency appointments, which, if followed, should significantly reduce the likelihood of a similar issue happening again in the future.

Note the words "if followed"., "significantly reduce the likelihood" .

Words that do not really inspire confidence. Deloittes and the guilty parties should have had their invsolvency practitioner certificates revoked, but no doubt they can go on earning £1125 per hour for sloppy work.

Thanks (0)
avatar
By SJH-ADVDIPMA
06th Feb 2020 11:41

Deloitte sounds a pretty dire organisation.

Thanks (0)
Nefertiti
By Nefertiti
06th Feb 2020 11:43

What a joke, the once highly regarded profession of qualified accountants and auditors are no better than crooks nowadays as more and more of these scandals get exposed. So much for "ethics" and not bringing the profession into "disrepute". These two guys should have been struck off instead of getting fined - they can easily afford to pay the fines and do it all over again if the price is right.

It is a well known secret that when any large business goes into liquidation, the insolvency firm "eat" what little is left of the business through exorbitant and nonsensical fees. How can Deloittes possibly justify £15m in Comet insolvency fees? They will simply use that fee to pay off the small £1m fine. Still a hefty profit overall.

Thanks (2)
avatar
By DianeLockhart
06th Feb 2020 12:31

The fine is a drop in the ocean of the fees levied in the liquidation and as a result are unlikely to make more than a small ripple in the ocean of income generated by the Big 6 in these large cases. Proportionally it is evident that Deloitte s and their ex partners have got off pretty lightly for what is a fundamental basic principle of compliance with the regulations and delivery on a case.

Large firms are a necessity because they have the resource to manage these large cases, but it does not justify the extortionate hourly rates being levied. Resource does not mean best delivery, as is proven here.

Whilst a landmark fine and reprimand, it remains to be seen that it changes attitudes in the big 6 and larger firms.

Thanks (0)
avatar
By ColA
06th Feb 2020 13:59

Tip of the iceberg for receiverships & liquidations.
A group of companies for which I managed the finances experienced an £80k unexpected bad debt a few years back with minimal likelihood of any substantial dividend as fees ate up any realised funds after settling preferential debts.

Thanks (1)
paddle steamer
By DJKL
10th Feb 2020 14:49

Nostalgia here from me for Comet, apart from my first ever audit for a quoted company (Fenners Pension Schemes) , Comet (Or a sub, of a sub, of a sub of Comet) was my entry into the big time of auditing;- far removed from the odd incorporated butcher or the dog track I audited in the same period.

Early 1986 ,I vaguely recall, Hodgson Impey audited the Comet downward bits and Deloittes did the Woolworths and upwards bits. (Another no more name)

From the larger audits I worked on Fenners are now part of Michelin but I doubt the final salary pension schemes survived anyway, Comet are no more and Nissan UK, I vaguely recall, got into a spot of financial difficulty back in the 1990s.

In conclusion, anything I ever audited seems to have come to a sorry end

Thanks (0)