KPMG Used “False Defense” in Silentnight Inquiry, Watchdog Says | KPMG
One of KPMG’s main partners lied in an investigation into the insolvency scandal of the bed company Silentnight, according to an unprecedented reprimand from a top accountant at the regulator.
The Financial Reporting Council (FRC) said that KPMG and David Costley-Wood, a partner of the company, used a “false defense” in an investigation into the sale of Silentnight to a private equity firm in 2011.
A court had previously ruled that KPMG had a “clear conflict of interest” as it had advised Silentnight and US private equity firm HIG. Silentnight went into receivership in 2011, allowing HIG to buy out the business without the burden of a large pension plan.
It was the first time the regulator discovered that an accounting firm was using a false defense, as a report released on Wednesday detailed the reasons for a £ 13million fine for KPMG announced in August. Costley-Wood, who previously headed KPMG’s restructuring division in Manchester, was also fined £ 500,000 and banned from licensing insolvency or accounting for 13 years.
Costley-Wood argued in court that Silentnight was on a “platform on fire” and would inevitably collapse. The court said this was “untrue in that it did not believe there was a burning platform throughout the relevant period”. This defense was “a construct invented by him to aid in his defense,” the court said.
The case raised serious questions about KPMG’s handling of conflicts of interest, as well as its lack of cooperation with investigators in the case over the decade that followed.
Elizabeth Barrett, executive advisor to the FRC Disciplinary Tribunal, said: “KPMG and Mr. Costley-Wood compounded their serious misconduct by advancing a defense against a process that was in part false and by failing to cooperate with the investigation. “
The court has repeatedly found that KPMG did not fully cooperate. KPMG has repeatedly claimed that Costley-Wood did not use a personal email address to perform work, to admit the existence of emails five years later, while KPMG attorneys, Linklaters , did not deliver a separate treasury of 2,367 documents until February 2021 due to an “Error”.
On another occasion, KPMG failed to release the relevant documents because an employee typed “Costly” rather than Costley-Wood during a search. Costley-Wood was also found to have backdated notes from a meeting.
The court found that KPMG and Costley-Wood were putting the savings of Silentnight’s pension plan members at risk, many of whom were relatively low-paid workers in the bed company factories. In March, HIG paid a Settlement of £ 25million to the pension regulator after alleging that the private equity firm “deliberately caused the unnecessary insolvency of the original Silentnight Group in order to buy its company out of administration, while leaving behind its defined benefit pension plan.”
HIG has maintained close ties with KPMG’s restructuring division, despite the scandal. In March 2021, HIG bought the division from KPMG, turning it into a new company called Interpath Advisory.
Jon Holt, Managing Director of KPMG UK, said: “This report makes it difficult to read. We accept the court’s findings and regret that the professional standards we expect from our partners were not met in this case and that it took more than a decade to get there.
“We no longer provide insolvency services and we have significantly improved our broader controls and processes since this work was carried out in 2010. We will carefully reflect on the court’s findings and ensure that we learn from them to strengthen our focus on building confidence and achieving the highest quality work.
Costley-Wood left KPMG and the accounting profession in June before the FRC announced the fine, according to earlier reports and a social media profile. He was approached for comment.
A spokesperson for Interpath said: “Now that we are no longer part of KPMG and as such we are not involved in these proceedings, we cannot comment.” HIG has been approached for comment.