MP Austin Mitchell revived his age-old reputation as the scourge of the accountancy profession by laying into PwC, Lloyds Bank and the ICAEW during a parliamentary debate on the receivership of a company in his constituency.
Mitchell succeeded in calling the debate last week to tell the story of what he called “the theft of a profitable Yorkshire company by the mafia”, according to the Hansard report.
He continued: “I do not mean the criminal mafia that we often speak of, but Britain’s dark-suited mafia, which in this case is represented by Lloyds Bank and PricewaterhouseCoopers, both acting in collusion and neither of them subject to police controls, because both regulate themselves.”
The saga goes back to the 2008 receivership and sale of Premier Motor Auctions, which had a turnover of £160m and 160 staff and was making an operating profit of £2.5m. The company also had a £1.75m overdraft facility that chief executive Keith Elliott wanted to increase to fund expansion. To enable this Lloyds introduced Irving Warnet from PwC’s northern business recovery practice as a non-executive director.
He advised creating a £2m account for a contract the company held with the Driver and Vehicle Licensing Agency that created a hole in the company’s finances, Mitchell told MPs.
Lloyds agreed to cover the shortfall by increasing the overdraft limit to £3.75m, but only if the company was put into receivership under what it called “Project Tic” and was then sold into administration again in “Project Toc”. PwC positioned itself to act for both parties, the MP said.
A £2m rescue deal put together by Elliott with Scottish Motor Auctions came to nothing. “I do not know whether the deal was aborted by Mr Warnett or by his boss Ian Green,” said Mitchell, “but I do know that aborting the Scottish Motor Auctions deal made the difference to PwC’s fees, which went from £10,000 for the SMA deal, if it had gone through, to £500,000 for carrying out the administration.”
“A company that was making, that year, £2.5m, before interest and tax, was put into administration by PwC and bought back by Lloyds and Scottish Motor Auctions. It is now functioning again and generating considerable profit for them. Elliott has been forced out, and Scottish Motor Auctions, Lloyds Bank, and presumably PwC, which handled the administration, are laughing all the way to the bank, having made a very considerable, generous profit out of the deal—out of effectively stealing the company. Elliott is left owing £2m on a warrant that he signed to get the £2m from Lloyds in the first place.”
Calling the way the company was taken over “a monstrous theft”, Mitchell also cited comments from the Independent Banking Advisory Service criticising the banks’ “special relationship” with government that has allowed them “and other professionals with whom they have conspired - to plunder and gain control of very profitable business, which the banks had marked as targets”.
Mitchell was even more concerned by the lack of redress available and set out the different ways in which Elliott’s attempts to do so were frustrated, starting with experienced when he tried to seek redress for the loss of his company, starting with rebuffs from Lloyds and PwC. The latter will not correspond with either Elloitt or Mitchell and told the former “to sue it”.
Next was the ICAEW, which Mitchell suggested should be renamed the “society for the prevention of cruelty to the Big Four accountancy houses”. It did not investigate Elloitt’s claims and said he should seek a judicial review, which is now out of time.
The Financial Reporting Council would not investigate because it said the number of people affected was small and doing so was not in the public interest.
The Insolvency Service and relevant minister both said they had no standing in the matter. As a result, Mitchell called for an independent investigation into the matter and for effective independent regulation of accountancy, audit and insolvency.
Regulation by the ICAEW is not enough, he continued, and “means that the Big Four are in effect their own masters and take their own decisions. That is a totally undesirable situation. The public and companies must have some right of redress and right of appeal—some knowledge that there will be an independent inquiry into abuses such as this.”
As a third step, Mitchell also demaded effective regulation of banks to ensure they supported small businesses rather than using “the power they have from granting overdrafts to take them over”.
Jo Swinson, the Liberal Democrat Parliamentary under-secretary of state for business innovation and science, answered that the ICAEW had investigated the affair, but concluded that no conflict of interest arose. “PwC was acting as investigating accountants for the bank prior to the administration, and therefore it was not contrary to the code of ethics with which all insolvency practitioners must comply,” she said.
The institute also concluded that PwC had not breached the code in negotiating to sell the business as that was compatible with its duty to maximise asset realisations, she added.
Mitchell countered that the ICAEW had only investigated part of the complaint, which needed to be treated as a whole to reveal the underlying conspiracy.
“That investigation was certainly far from thorough, because it has left open the question of whether PwC could act for both the company and the purchaser in the administration,” he said.
The minister responded that the Insolvency Service had concluded that the ICAEW had adhered to its complaints processes and that the finding of the investigation committee was not unreasonable.
The 30min debate that took place on 12 November can be viewed on Parliament TV.
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