KPMG made 'untruthful' defence in Silentnight case - FRC
Accountant was fined £13m for acting in favour of private equity firm
KPMG mounted an untruthful defence and withheld evidence from regulators as it tried to cut a fine for misconduct during the sale of bed maker Silentnight, the UK’s accounting watchdog said on Wednesday.
The accountant was found guilty of a conflict of interest after acting as adviser to both Silentnight and US private equity company HIG Capital which was trying to buy the British firm.
In August, KPMG was fined £13m and ordered to pay more than £2.75m in costs by the Financial Reporting Council (FRC), the highest on an accounting firm in a non-audit case, while partner David Costley-Wood was fined £500,000 and banned from working as an accountant or holding a solvency licence for 13 years.
Costley-Wood, the former head of restructuring at KPMG's Manchester office, helped with a strategy designed to drive Silentnight into insolvency or the brink of insolvency to transfer Silentnight's £100m defined benefit pension scheme to The Pensions Regulator (TRC), the FRC found.
In March HIG agreed to a £25m settlement of an anti-avoidance case brought by the TRC after the private equity outfit acquired Silentnight and left 1,200 pension scheme members out in the cold. At the time the scheme had an ongoing deficit of £39.5m and a buyout deficit of £99.8m.
KPMG in June had called for a fine of no more than £5m over its behaviour. On Wednesday, the FRC published the tribunal's report on how it determined the level of the fine and the case in general.
"For the first time, the tribunal has held that a respondent advanced an untruthful defence," it said in a statement.
'BURNING PLATFORM' DEFENCE 'A CONSTRUCT'
The FRC had argued that Costley-Wood, who no longer works at KPMG, assisted with a 'burning platform' strategy – forcing change without knowledge of the consequences - to drive Silentnight into an insolvency process. This in turn would assist HIG acquire the company without the burden of its pension liabilities.
"We do consider that 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 tribunal said.
“KPMG and Mr Costley-Wood compounded their serious misconduct by advancing a defence to proceedings which was partly untruthful and by failing to co-operate with the investigation,” said Elizabeth Barrett, the FRC’s executive counsel.
The FRC also said KPMG failed to disclose an ad hoc retainer with Silentnight before it was formally engaged in January 2011, which the tribunal said may have delayed the probe into potential conflict of interest.
It was “difficult to explain” KPMG’s failure to disclose a bill for £45,000 – the equivalent of £432 an hour - to Silentnight for work before the firm’s formal engagement, adding that it had “some difficulty” accepting it had been simply overlooked give it should have “been fairly easy to discover”.
KPMG chief executive Jon Holt said the 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.”
KPMG is also being investigated by the FRC for its role in auditing collapsed builder Carillion.