BDO's Rock valuation at centre of High Court showdown

BDO Stoy Hayward will find itself at the centre of a High Court showdown next week as Northern Rock investors and shareholder groups take on the Treasury over the valuation of the nationalised bank.

The top 10 accounting firm won a £4.5m contract to value the bank last September, but it may have to proceed with the job under radically altered terms if the judge decides to overhaul the criteria for the task.

Fund managers SRM Global and RAB Capital, backed by the UK Shareholders Association, are trying to have the terms amended, claiming the Northern Rock Compensation Scheme Order, drawn up to deal with the valuation, contravenes human rights laws.

The assumptions of the order treat the bank as if it was not a going concern and already in administration before the government stepped in to help with its £25bn bailout package.

BDO is still in the information gathering stage of its task, but if the High Court overturns the government decision, BDO may then have to treat Northern Rock as a going concern, rather than a collapsed company. Last September, Accountancy Age revealed that SRM wrote to BDO asking the firm to hold off doing any substantive work because it thought it would be ‘foolish to carry out the proper valuation until after the judicial review had concluded.’

BDO defended its decision to start work without waiting for the outcome of the judicial review.

‘Delaying the progress of the valuation to await the conclusion of possibly lengthy legal proceedings should be avoided if possible,’ BDO said last year. ‘In addition, the information that the independent valuer needs to obtain to conduct the valuation is likely to remain the same irrespective of the assumptions on which it is based.’

The judicial review is expected to last for most of next week, before a ruling is issued in the following few weeks, said Roger Lawson, chairman of the UK Shareholders Association.

He added: ‘We will be contesting the legality of the government’s approach to the Compensation Order. The terms are based on totally artificial assumptions. The government is looking to gain a thrifty valuation which benefits them and screws the shareholders.’

Lawson predicted there would be more legal battles, because neither side was likely to back down, adding to the hefty court bills.

‘Whoever wins the judicial review, there will be appeals and the government will be running up more bills at the taxpayers’ expense.’

BDO said it was unable to comment on the review.