BDO in £3m lawsuit over bankruptcy

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.’

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