KPMG has been fined £13m in relation to its unethical conduct around the takeover of Silentnight by private equity fund HIG in 2011. It has also been ordered to pay £2.755m towards the costs of the investigation and tribunal. A former partner and head of KPMG Manchester, David Costley-Wood, has personally been fined £500,000, severely reprimanded, excluded from membership of the ICAEW (Institute of Chartered Accountants in England and Wales) for 13 years, and banned from holding an insolvency licence for the same period, for his misconduct.
The sanctions were announced by The Financial Reporting Council following a referral from The Pensions Regulator and an investigation undertaken in relation to Costley-Wood’s conduct.
The tribunal described the history of KPMG’s involvement with Silentnight in this case as “deeply troubling” as KPMG failed to act solely in its client’s interests, acted in fundamental respects contrary to those interests, and in those of a party whose interests were “diametrically opposed” to those of Silentnight. It concluded that the lack of objectivity in this matter went to the core of the relationship between Silentnight and KPMG.
The tribunal also held that, in addition to the lack of objectivity in relation to his dealings with Silentnight, Costley-Wood acted dishonestly and, therefore, he and KPMG acted with a lack of integrity including in their dealings with the Pension Protection Fund and the Pensions Regulator, despite Costley-Wood acknowledging that there was an obligation to act transparently in relation to a regulator.
In a statement, the tribunal said: “Breaches of the principles of integrity and objectivity risk seriously undermining public confidence in the standard of conduct of members and member firms and in the profession generally, all the more so where, as here, the professional has acted dishonestly. Dishonesty is inimical to everything that a profession stands for and especially destructive of public confidence.”
The tribunal found that throughout the period of August 16, 2010, and January 14, 2011, Costley-Wood advised and/or assisted both Silentnight and HIG in relation to a proposed acquisition of Silentnight by HIG at a time when there was a conflict of interest between the interests of Silentnight and HIG. It said that Costley-Wood assisted with a strategy designed to drive Silentnight into an insolvency process, or to the brink of such a process with a view to passing Silentnight’s Pension Scheme to the PPF at the expense of Pension Scheme members and PPF levy payers.
In this context, Costley Wood provided advice and assistance to HIG so that it could acquire Silentnight as an otherwise profitable business without the burden of the pension scheme liabilities. He had dishonestly advanced and associated himself with untrue and misleading and/or materially incomplete statements to the PPF, tPR, Silentnight and the trustees of the Silentnight Pension Scheme regarding the causes of Silentnight’s difficulties, to assist HIG in its efforts to enable Silentnight to shed its liability under the Pension Scheme as cheaply as possible.
The tribunal considered the misconduct was very serious, noting that, to a professional accountant, the conflicts of interest should have been obvious and that the misconduct risked the loss of significant sums of money. It put at risk Silentnight’s ability to survive and tens of millions of pounds of creditors’ claims, potentially exceeding £100m as the liability to the Pension Scheme would crystallise.
The tribunal said: “The standards of integrity and objectivity are of fundamental importance. They express the most basic requirements that society expects of professional accountants. Members of the profession have a privileged and trusted role in society. In return, they are required to live up to their own professional standards. Society expects high standards from professional persons, and the professions expect high standards from their own members.”
Silentnight went into administration on May 7, 2011, which culminated in the sale of the business out of administration to HIG.
A KPMG spokesperson said: “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.”
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