KPMG offers 'untruthful' defence in Silentnight tribunalby
A new report from the Financial Reporting Council (FRC) highlighted evidence that the Big Four firm was dishonest during the investigation into the Silentnight insolvency case.
The Financial Reporting Council (FRC) published a summary of a tribunal that found a senior partner at KPMG had presented an “untruthful” defence during a disciplinary hearing.
The FRC hearing was convened to investigate KPMG’s misconduct during the sale of bedmaker Silentnight to a private equity fund. The tribunal found that partner David Costley-Wood failed to co-operate with the accounting regulator’s investigators.
UK regulator upholds £13m fine on KPMG. One of its partners helped push Silentnight into insolvency to enable private equity firm to buy company, dumped pension scheme deficit affecting 1200 staff. Partner lied to investigators.
Why is KPMG still trading?https://t.co/XvlGbzptLJ
— Prem Sikka (@premnsikka) October 13, 2021
Conflict of interest
During August of this year, KPMG was fined £13m and incurred costs of over £2.75m for its role in placing Silentnight into a insolvency process during 2011 that allowed private equity firm HIG Capital to acquire it without the burden of a £100m pension scheme liability.
KPMG’s lack of objectivity and “obvious” conflict of interest was the latest in a string of public humiliations including lawsuits and disciplinary complaints relating to audits the firm carried out at Carillion, Rolls-Royce and Conviviality, the owner of Bargain Booze.
This latest sanction was a huge financial hit for the Big Four firm. The tribunal report states that for the first time ever, the tribunal found a respondent had advanced dishonest evidence.
Costley-Wood, who faced fines of £500,000 for his involvement in the original case, claimed that Silentnight faced a “burning platform” prior to the debt sale agreement. However, the tribunal stated: “The defence put forward by Mr Costley-Wood in relation to the burning platform was a construct invented by him to assist in his defence.”
The FRC said mounting an untruthful defence “seriously risks undermining the regulatory system [and] compounds the original failings”.
Failure to cooperate
The report also found that:
- KPMG failed to reveal to share material facts with the FRC executive counsel when required, such as recording £45,000 of time costs prior to its formal engagement and an ad hoc retainer with Silentnight that started around 16 August 2010.
- Costley-Wood created a note of a crucial meeting on 16 August 2010 some 13 months after the event, specifically in response to an investigation by the Pensions Regulator. However, neither Costley-Wood nor KPMG drew to the attention of either the Pensions Regulator or the FRC investigation that the note was produced over a year after the meeting in question.
“The failure to carry out comprehensive searches in response to the specific requests by the executive counsel is a serious matter as it does exhibit a failure to cooperate,” the tribunal stated.
The tribunal decision highlighted failures by KPMG and its lawyers Linklaters to disclose documents on time, including 118 that were originally not produced because a search was run against the name “Costly” instead of “Costley”.
Almost three months after the tribunal hearing KPMG had still not produced more than 1,800 documents that were missed because of similar search errors.
KPMG UK chief executive Jon Holt told AccountingWEB: “This report makes difficult reading. We accept the findings of the tribunal, and we regret that the professional standards we expect of our partners were not met in this case and that it has taken over a decade to reach this point.
“We no longer provide insolvency services and we have improved our broader controls and processes significantly since this work was performed in 2010. We will reflect on the tribunal’s findings carefully and ensure that we learn lessons to reinforce our focus on building trust and delivering work of the highest quality.”
Elizabeth Barrett, FRC executive counsel, commented: “KPMG and Mr Costley-Wood compounded their serious misconduct by advancing a defence to proceedings which was partly untruthful and by failing to cooperate with the investigation. This ruling contains important learnings for members and member firms, both in relation to the original misconduct and in relation to the conduct expected once an investigation has been commenced.”