By October, Ernst & Young’s UK business could be registered 20 miles off the French coast, on the island of Jersey.
E&Y says it is ‘actively considering’ taking this momentous step following the vote in the Jersey parliament a fortnight ago that adds insolvency regulations to the long-awaited limited liability partnership law.
Two years ago, however, E&Y, along with its co-sponsor of the LLP legislation Price Waterhouse, was intent on a move to Jersey.
Massive legal battles over their audit of BCCI and disputes with other clients had left the two firms desperate for a safe haven to protect their assets.
In Jersey, the idea went, the firms’ partners could enjoy their beneficial partnership tax status and protect their assets.
KPMG spurned the move – it had already decided to forego the tax break and turn its audit practice into a limited company.
The other three Big Six firms were content to watch and wait.
E&Y and PW took the plunge. They argued behind the scenes that the move to Jersey was a stick to beat the then Tory government and Labour opposition into agreeing that a UK-wide LLP law was necessary. If that failed, they were serious about a move.
But soon they found themselves mired in a series of embarrassing episodes.
They retained the Jersey law firm of Mourant du Feu & Jeune, which in turn provided support for the Jersey parliament with legal drafting skills and advice.
Once the legislation came before the senators to be debated, one of the parliament’s most senior members, Reg Jeune, was accused of ignoring a conflict of interest. It was revealed the solicitor had continued to work as a consultant for his old law firm, the same Mourant du Feu & Jeune.
Jeune denied the relationship had swayed his opinion and he refused to leave the debate. Instead, his accuser, Stuart Syvret, was barred from attending the parliament for the rest of his term of office – a sentence which was subsequently cut to six months. He is suing Jeune and his deputy over the affair.
The row was messy and press reports of the dispute began to make the move look decidedly shaky. Jeune was subsequently found innocent of any ‘malpractice’ by an investigating committee, but critics called the whole episode a white-wash, and some of the mud thrown stuck. Then critics of the move, including Austin Mitchell MP, began to attack the legislation itself.
They said it allowed professional partnerships to acquire protection for their assets without giving anything up.
Financial secrecy will prevail
Mitchell argues that LLPs in Jersey will be allowed to maintain their financial secrecy, preventing unprotected creditors from gaining the financial information they need to make claims against insolvent firms.
The island’s finance chief, senator Frank Walker, denies the island has proved to be a soft option for the accountancy firms. He said the insolvency regulations mirrored UK arrangements and creditors could gain all the financial information they needed from their appointed liquidator.
If there are any concerns from the creditors, they can appeal to the Jersey courts.
Mitchell refuses to believe the courts will protect creditors. The Bailiff and deputy Bailiff are the most senior judges on the island. They are also the Speaker and deputy Speaker in the Jersey parliament. Mitchell points to this special relationship between the judiciary and parliament as a basic conflict of interest that would not be tolerated on the mainland.
In a clear reference to Mitchell, senator Walker retorts: ‘Nobody, other than one person, has ever suggested that our Royal Court dispenses anything other than even-handed justice.’
There is, in fact, a small but growing band of dissidents who take Mitchell’s side. Several are senators who voted against the regulations going through last week.
Walker counters that critics have failed to put down any amendments to the LLP law.
‘There have been no suggestions for any changes from anybody – not the UK government, not Mr Mitchell. The Privy Council approved the legislation after it was passed in 1996 and I don’t think it would have done that if it had any concerns,’ he says.
According to E&Y, however, the only barrier to any move is the decision by the Inland Revenue to tax Jersey LLPs as companies. Senior partner Nick Land said he is awaiting the outcome of judicial proceedings challenging the Revenue’s view. ‘We don’t expect an outcome until the end of the year,’ he says.
Other firms say they took legal advice at the time which concluded the Revenue was duty bound to levy corporation tax. Prem Sikka, accounting professor at Essex university and another critic of the move, said: ‘I don’t know why they are spending money on this judicial review. The tax issue is not something the government can concede. If the Revenue loses, it will appeal to the House of Lords, snarling the whole process up for years. If they lose that they will change the law.’
PW, on the other hand, went cool on the idea once it entered merger talks with Coopers & Lybrand.
PW insiders say it still wants a UK LLP law and the threat of a Jersey move is still a good stick to beat them with.
But while there is a review of financial regulation on Jersey, Guernsey and the Isle of Man by the Home Office and a dispute with the Revenue, the stick looks more like a twig.
The island will need to get a clean bill of health from the Home Office and the Revenue will need to climb down before either firm swaps London for the protection of the Channel Islands.
A new head of solutions, Aidan Brennan, has been appointed at KPMG UK
The second largest improvement in ‘significant’ levels of financial distress since the EU Referendum was in professional services, found research from Begbies Traynor
Just one half of UK practices have implemented a pricing structure around auto enrolment implementation and advice - with many suffering increased costs
Deloitte's north-west Europe foray; BDO, Smith & Williamson investment paths; Shelley Stock Hutter; and Wilkins Kennedy discussed by editor Kevin Reed on our Friday Afternoon Live broadcast