Deloitte under fire for £15m Comet liquidation fees
With numbers some may describe as astronomical, Deloitte has been slammed for pocketing more than £15m in fees from collapsed retailer Comet since 2012, despite the lingering threat of prosecution and criminal conviction over its handling of the liquidation.
The Big Four firm earned £10.2m as administrator and £5m in liquidation fees for its work, according to The Times, despite an ongoing investigation into the way three Deloitte executives handled Comet’s administration.
Deloitte also coined an additional £1.4m advising Opcapita, backers of Comet’s parent company, Hailey Acquisitions, before Comet went bust in 2012.
According to the 2018 liquidators report, £2.2m was paid out in legal fees in relation to the insolvency, with magic circle law firm Freshfields Bruckhaus Deringer LLP earning £1.5m for counsel to Deloitte during the process.
The Insolvency Service asked the administrators' authorising body, ICAEW, to investigate Deloitte’s work in 2014.
ICAEW has powers to issue fines in certain cases, and if an insolvency practitioner is found to have acted dishonestly, it can withdraw its licence.
A trio of Deloitte executives, Christopher Farrington, Nicholas Edwards and Neville Khan, were advisers to the doomed electrical goods retailer, yet accepted appointments as administrators despite potential for conflicts of interest after Comet’s collapse, according to the Insolvency Service.
Kahn, a former managing partner at Deloitte and insolvency specialist, resigned from the firm in June last year.
“As this matter remains subject to a confidential disciplinary process, it would not be appropriate for us to comment further,” a Deloitte spokeswoman told AccountingWEB.
ICAEW released a statement which said: “Our disciplinary Byelaws preclude us from commenting on whether any matter may or may not be the subject of consideration by our Professional Conduct Department. Where such consideration results in disciplinary action being taken then a public announcement will be made.
“Although we cannot comment on any individual matters, those same byelaws state that a member shall be liable to disciplinary action if he commits any act or default likely to bring discredit on himself, the Institute or the profession of accountancy.”
Referring to the matter as “insolvent abuse”, Prem Sikka, professor of accounting at the University of Sheffield and emeritus professor of accounting at the University of Essex, was scathing in his view of a “poorly regulated” sector.
“Deloitte partners charged up to £1,125 per hour for insolvency work on Comet,” he said. “Insolvency began in 2012. Insolvency practitioners have incentives to take as long as they can to finalise liquidation as it pushes up their fees. This industry is out of control.”
Sikka said while Deloitte and law firms make a killing, thousands of suppliers owed over £200m will get almost no return, and Her Majesty’s Revenue and Customs will also stand to lose £26m ensuring “there is no equitable sharing of insolvency risk”..
An employment tribunal in 2014 found that Comet’s employees were not properly consulted on redundancy options by Deloitte as legally required, leading to a potential £26m taxpayer-funded compensation payout.
Usdaw, the shop-workers’ trade union, called for changes to law to end the “perverse” financial incentive for administrators not to comply with legal obligations on collective redundancy consultation.
A spokesman for Usdaw told AccountingWEB if employers and administrators were financially liable for the protective award resulting from the redundancy process, they would be much less likely to ignore their statutory duty to meaningfully consult with employee representatives.
“When a company gets into real difficulties, all too often administrators wade in, ignore the management’s existing good relationship with trade union representatives and hide behind confidentiality to exclude workers from a meaningful dialogue,” the spokesman said. “Administrators should also face financial penalties when they fail to comply with the law and properly consult.”
Comet was saved from collapse in late 2011 when it was sold to turnaround specialist OpCapita for £2 with former owners Kesa including a £50m “dowry”. But it continued to lose money, and finally went bust in November 2012.
It later emerged that the company's owners had received about £117m from the administration process.