BDO Stoy Hayward is facing a £3m lawsuit after failing to block a claim in the High Court for an alleged breach of professional obligations.

In a court judgement refusing BDO’s request to have the claim struck out, it was revealed that the allegations related to work that BDO performed for European Reinsurance Consultants and Run-Off Ltd (ERCRO) as well as the bankruptcy of one of its owners.

It is alleged that in performing this work BDO sent an ‘untrue and/or misleading’ letter to Brighton County Court suggesting that ERCRO’s liabilities exceeded its assets and made an inaccurate share valuation of ERCRO. The letter formed part of a bankruptcy petition in February 2002 against Ron Pearce, a joint owner of ERCRO.

Pearce is now pursuing BDO to recover his costs in defending the bankruptcy petition, which was subsequently set aside in June 2002. Pearce claims BDO massively undervalued the company and as a result his shareholding – £10,400 instead of £350,000.

The case stems from 2001 when Pearce fell out with fellow ERCRO owner Christopher Palmer.

An attempt was made to wind up the company. But it failed, prompting ERCRO and Palmer, as sole director, to pursue Pearce for costs associated with the failed winding-up totalling £36,000.

The bankruptcy order was then awarded against Pearce, but this came only after BDO wrote the letter to Brighton Crown Court claiming the company’s liabilities outstripped its assets. The value of Pearce’s shareholding in ERCRO would therefore fail to cover the claim for winding-up costs.

The case will now proceed to a full hearing, probably in August, where BDO will defend the claims that it failed to proceed diligently with the valuation of the shares and acted ‘unfairly and partially’ for Palmer’s interests, which resulted in the inaccurate valuation.

The firm will also defend allegations that it breached its duty of fairness and impartiality by writing the letter to the Brighton County Court.

In a statement BDO said: ‘We are absolutely confident of our defence.’