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KPMG fined £13m over 'troubling' Silentnight sale

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KPMG was fined £13m after fixing the pre-pack sale of mattress retailer Silentnight to a private equity business it was also advising and dumping pension scheme liabilities.

5th Aug 2021
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Critics accused KPMG of allowing greed to “over-rule duty of care” after the Financial Reporting Council (FRC) severely reprimanded the Big Four firm for its lack of objectivity and integrity in the acquisition of Silentnight by HIG Capital in 2010. 

An independent disciplinary tribunal in June 2021 described KPMG’s involvement as “deeply troubling” and found that the conflict of interest put the mattress retailer’s ability to survive into question. 

The £13m fine is just shy of the record breaking £15m sanction the FRC handed to Deloitte over its handling of the audit of the ill-fated software firm Autonomy. The tribunal also ordered KPMG to pay more than £2.75m in costs.

Along with KPMG’s £13m financial penalty David Costley-Wood, a former partner and head of KPMG Manchester Restructuring, was also severely reprimanded and fined £500,000. 

When determining the sanctions, the tribunal described the conflict of interest as “obvious” to a professional accountant and viewed the misconduct as “very serious”.  

“The scale and range of the sanctions imposed by the tribunal mark the gravity of the misconduct in this matter. The decision serves as an important reminder of the need for all members of the profession to act with integrity and objectivity and of the serious consequences when they fail to do so,” noted FRC executive counsel Elizabeth Barrett.

Plan to dump the pension scheme

Costley-Wood advised both Silentnight and HIG from August 2010 to January 2011, during which time the tribunal found he pursued a course that was diametrically opposed to the interests of the bed-maker. 

Costley-Woods helped to drive the bed manufacturer into an insolvency process or to the brink of such a process, which would enable HIG to shed the business of the pension scheme liability as cheaply as possible by passing it to the Pension Protection Fund (PFF).

The “foreseeable consequence” of this plan would come at a cost to the pension scheme members, the investigation noted. The majority of the pension scheme members were Silentnight factory workers who had contributed to the scheme much of their working life. 

The misconduct not only jeopardised the survival of Silentnight, but risked tens of millions of pounds of creditors’ claims, potentially exceeding £100m.

Silentnight was put into administration in 2011, resulting in the sale of the business to HIG and the PPF assessing whether to assume responsibility for the pension scheme. 

One further allegation of misconduct made by the FRC was not upheld by the tribunal.

Under the sanctions imposed on KPMG, an independent reviewer will now conduct a root cause analysis to find out why the threats to compliance and objectivity were not identified, and to review the firm’s policies, procedures and training programmes. 

KPMG’s statement

A spokesperson for KPMG UK told AccountingWEB: “We acknowledge the tribunal’s findings and regret that the professional standards we expect of our partners and colleagues were not met in this case. Mr David Costley-Wood has retired from the firm and whilst we no longer provide insolvency services, our broader controls and processes have evolved significantly since this work was performed over a decade ago.

“As a firm, we are committed to the highest standards and continually invest in our people and procedures to ensure potential conflicts of interest are identified and managed effectively. We welcome the additional review process outlined by the FRC and remain focused on building trust and delivering work of the highest quality.”

‘Greed over-rules all duties of care’

However, fair tax campaigner and academic Richard Murphy called KPMG’s misconduct a “basic fundamental breach of ethics”.

“I know we were talking a decade ago. But this wasn’t back in the dark ages when all the Big Four were in the wild west. They had made statements at the time that everything had changed and had taken on all the requirements - but they hadn’t,” he said. 

“It’s impossible that a partner at KPMG did not know this was a breach in professional ethics. KPMG is not a backwards firm that didn’t know. This is a major firm dealing with major clients and it is all too aware of the consequences of this fine. 

“Why does it seem within the profession that there are too many that you can swing a sweetie in their face and they grab it? Greed over-rules all duties of care.”

Just as big a concern for Murphy is the absence of the tribunal report: “The review findings should be published. We need to know. If this failure is so significant, why does it take so long for these matters to come to light?” 

Labour peer and accounting expert Lord Prem Sikka was just as damning. “This is part of a long line of anti-social and unethical practices by KPMG and other big accounting firms. This inflicts enormous damage on innocent stakeholders. Regulators need to impose effective sanctions. These should include a five-year ban on the firm to win any new business,” he told AccountingWEB.

Replies (18)

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By Paul Crowley
05th Aug 2021 20:03

If only there was some sort of effective regulation of the big firms.

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Replying to Paul Crowley:
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By Hugo Fair
05th Aug 2021 22:11

They only understand one language ... threat to their profits ... so there is a solution - a commitment by central govt to cease using their 'consulting/advisory' services.
This would:
* force the big four (or six or whatever) to focus on their supposed core skills;
* increase VFM delivery and in-house skills across the public sector;
* whichever political party has this policy will win next general election.

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Replying to Hugo Fair:
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By Rgab1947
06th Aug 2021 09:52

Next Gov? Dont think so. My daddy voted Tory/Labour/Lib dem so I will vote accordingly.

PR works in the EU.

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Replying to Paul Crowley:
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By Marlinman
06th Aug 2021 10:32

At my last regulatory visit the examiner told me big 4 partners live on a different planet. They just say 'discipline us and we'll sue you and we've got more money than you have'

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By Justin Bryant
06th Aug 2021 09:11

I'm no expert, but why did BHS (and others) not (try) pull the same trick? Perhaps it's more the fault of there being such a loophole in the pension scheme rules in the 1st place. It may be an extreme view and unpopular view, but if KPMG's client was the company's shareholders then possibly it can be argued that (ignoring any conflict of interest issues) it gave them good advice here in the circumstances re such a loophole? Without seeing the report we can only guess of course.

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Replying to Justin Bryant:
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By Rgab1947
06th Aug 2021 09:50

"...but why did BHS (and others) not (try) pull the same trick? "

Maybe they had an honest insolvency/audit firm (yeah I know)

It makes a mockery of MLR.

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By Trethi Teg
06th Aug 2021 09:48

KPMG is one business, managed by the managing partner (or whatever he /she is called) and all partners benefit from it's profit's. including those dervived from shody (shady) work.

The business constantly breaks the rules and brings the profession into disrepute. It pays fines which, when spread across the partners, are almost meaningless.

The answer is simple. Kick all of them out of the Institute for ever.

Perhaps then others will pay attention.

If they do not then kick them all out.

OK - there will be no auditing but so what - the audits are useless anyway.

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By Iamarobot
06th Aug 2021 09:51

Why are large firms so greedy?

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Replying to Iamarobot:
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By Justin Bryant
06th Aug 2021 10:00

There's a very simple answer there and in asking that question I assume you've not worked in a Big 4 firm. To be a partner in a Big 4 firm you have to be someone who takes money very seriously indeed (in more ways than one of course). It's pretty much all & everything to most of them.

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Replying to Iamarobot:
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By Marlinman
06th Aug 2021 10:35

A client of mine was charged 25 grand by one of the big 4 for basic advice on salary and dividends which I would have given for free.

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By NeilW
06th Aug 2021 10:04

Fines are not enough. Until liberty is lost all this is just the cost of doing business.

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By farrcorfe
06th Aug 2021 12:27

Perhaps KPMG should be forced to take over the Silentnight pre=sale pension liabilities in full. That might do the trick!

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Replying to farrcorfe:
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By RetiredTax
06th Aug 2021 17:59

Spot on.

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By GHarr497688
06th Aug 2021 20:41

Over the years I have seen how large firms operate.Generally they do as they like and don't care. I lost a client to a large national - I told them the filed Accounts were wrong and needed adjusting. The reply was that weren't bothered - too small to look into so they filed as final. Another case of HMRC not monitoring what they do and turning a blind eye.

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By moneymanager
06th Aug 2021 23:21

An associate of many years ago was in the process of selling his business, near the final date he was told that the deal was off and that going forward they'd dealing with the receiver, "What receiver?" was the worried and bemused seller, "The one your (our) accountants are dealing with"; that was Grants of circa 1984.

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By daymar
07th Aug 2021 08:08

I wonder if either the firm or the partner are bothered about the fines as they are probably all covered by insurance anyway.

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By AndrewV12
01st Sep 2021 11:13

Reading the case above it goes far beyond “deeply troubling”.

“deeply troubling” a very British term for shockingly bad and totally un-acceptable.

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By AndrewV12
01st Sep 2021 11:15

Mr David Costley-Wood has retired from the firm and whilst we no longer provide insolvency services, our broader controls and processes have evolved significantly since this work was performed over a decade ago.

Yet again like MP's, long gone and never face the music.

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