BDO sued for £250m: Partner admits to ‘serious dereliction of duty’

BDO sued for £250m: Partner admits to ‘serious dereliction of duty’

BDO partner mistakenly described the administration of One Blackfriars Limited as objective two, not objective three

Sarah Rayment, partner at BDO, admitted in her final day of cross-examination that she made a mistake in her first witness statement produced in 2011.

Simon Davenport QC, acting on behalf of the claimants in the case, put it to her that this mistake amounted to a “serious dereliction of duty”. Rayment agreed, replying: “Yes, my lord.”

Rayment also failed to correct the mistake in her most recent witness statement, prepared specifically for this case. This, Davenport suggested, amounted to a “serious” error.

“As an office holder, it’s a serious mistake and at the time one that embroiled the court as well, wasn’t it,” said Davenport.

“Yes, my lord,” said Rayment.

The BDO partner at the centre of the £250m lawsuit admitted that she had realised her mistake prior to the creation of her witness statement for this case, but had not thought to put it in her most recent statement.

“I know I would have known of it [the mistake] when I was compiling this witness statement,” she said. “But it’s a mistake and I haven’t addressed it in this witness statement.”

It was put to Rayment that she “consciously” left out her acknowledgement of her error in the witness statement prepared for this trial, but she disagreed.

“I didn’t consciously leave this out of my witness statement,” she said.

What is the difference between objective two and objective three?

There are three statutory purposes for administrations as set out at Paragraph 3 to schedule B1 of The Insolvency Act 1986. Those provisions came into force and apply to all administrations after September 15, 2003. The administrator has to carry out their functions to achieve one of the statutory purposes.

The three administration statutory purposes (or required outcomes) are:

  • [Objective one]: Rescuing the company as a going concern. (Note: this purpose is to rescue the company as opposed to rescuing the business undertaken by the company.)
  • [Objective two]: Or, achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration).
  • [Objective three]: Or, realising property to make a distribution to one or more secured or preferential creditors.

Objective two aims to achieve a better result for the company’s creditors as a whole (all to whom the business owes money) than would be likely if the company were wound up (without first being in administration). This would include unsecured creditors, secured creditors and preferential creditors, as well as secured and preferential creditors.

Objective three is where possibly only one individual creditor (which can be a secured or preferential creditor) gets a distribution (a payment of what’s owed) rather than having to show that all of them are better off.

As BDO considered One Blackfriars Limited to be an objective three administration, it sold the property and raised enough cash so that the secured creditors, the syndicate of lenders (Royal Bank of Scotland, Santander UK and Allied Irish Bank), were paid and unsecured creditors were not.

BDO’s Rayment argued consistently in her cross-examination that they would let the market decide the value of the property and that because they thought it was unlikely to raise more than the amount required to reimburse the syndicate of lenders, this case was an objective three administration.

The fifth-largest accountancy firm in the UK are accused of selling the One Blackfriars site, a 52-storey skyscraper development project on London’s South Bank now known as ‘The Boomerang’, for significantly less than it was worth. The site was sold to Berkeley Group in 2011 for £77.4m, but just 18 months later was then valued by the property developer at £232m.

BDO are contesting the charge and maintain that the case against them is “speculative and without merit”, according to a spokesperson.

The case is expected to last six weeks.

 

Resources & Whitepapers

How to optimise your compliance lifecycle

How to optimise your compliance lifecycle

12m
The new rules of accounting

The new rules of accounting

1y
5 ways internal productivity can boost your profitability

5 ways internal productivity can boost your profitability

1y
Crushing the Four Barriers to Growth

Crushing the Four Barriers to Growth

1y