KPMG insolvency misconduct “further emphasises” need for independent regulator, MPs say

The “grave misconduct” of Big Four accounting firm KPMG in advising a recent private equity sale has prompted a parliamentary lobby group made up of MPs and peers to reiterate its calls for an independent insolvency regulator.

In an independent tribunal hearing earlier today, KPMG and David Costley-Wood (one of its former partners) were found to have breached objectivity and integrity principles in their work on the sale of bed manufacturer Silentnight to US private equity firm HIG Capital.

Mirroring accusations originally made by the Financial Reporting Council (FRC), the findings adjudged KPMG to have helped force the insolvency of Silentnight in order for it to be acquired without its £100m pension liabilities in tow.

The firm has been handed a £15m fine as a “starting point”, equalling the record penalty given to Big Four rival Deloitte in 2020 for failings in its audits of software company Autonomy. The FRC has also called for Costley-Wood to be fined more than £500,000 and banned from the insolvency profession for 15 years.

“This whole case is just a witch hunt,” said Costley-Wood during the hearing, branding the accusations as “frankly outrageous”. The remarks were characterised by the tribunal as a “lack of insight and regret”, highlighting them as an indicator that the misconduct will likely occur again.

“Pattern of exploitation”

In a statement following the hearing, The All-Party Parliamentary Group (APPG) for Fair Business Banking argued that the case stands as a “timely reminder” of the industry’s potential for serious failures and injustices.

“Today’s landmark findings have exposed a pattern of exploitation and serious conflicts of interest in the insolvency profession,” it said.

The tribunal’s findings demonstrated that Costley-Wood and KPMG had knowingly and dishonestly provided materially incomplete or fabricated statements to Silentnight, pension trustees and pension regulators, acting with a lack of objectivity in doing so.

A spokesperson for KPMG UK said: “The tribunal’s draft findings relate to restructuring work performed over a decade ago. We will consider those findings and our options for a possible appeal at the appropriate time.

“We disagree with a number of the arguments being advanced by Executive Counsel at the sanctions hearing.”

KMPG received more than £1.5m for its role in the sale, but since 2010 it has earned more than £8.5m from HIG Capital and its investment portfolio, the hearing was told. This conflict of interest is thought to have been the driving force behind the scandal.

“The clear conflict of interest and lack of objectivity in the Silentnight case demonstrates a wider issue with the insolvency industry,” the APPG said in its statement.

The group’s remarks also include comments from Kevin Hollinrake, co-chair of the organisation and MP for Thirsk and Malton, in which he refers to KPMG and Costley-Wood’s actions as “egregious”.

“This further emphasises the need for the APPG on Fair Business Banking to continue to look closely at this industry,” he said.

“We need a long-term solution in the form of an independent regulator for the sector.”

The APPG launched an inquiry into the insolvency profession in January 2021, and results of an industry-wide call for evidence are expected in the Autumn.

The KPMG case arrives during a time where trust in the wider professional services industry is being placed under the microscope. The audit sector in particular is facing severe scrutiny, with financial reporting malpractices having been the common denominator in recent scandals including construction firm Carillion and café chain Patisserie Valerie.

The department for Business, Energy and Industrial Strategy (BEIS) and the FRC are currently consulting on ‘once in a generation’ reforms that would overhaul the sector and see the inception of a new audit regulator.