Deloitte to face £20m fine over MG Rover sale

LONDON. July 31. KAZINFORM Deloitte faces a fine of up to £20m and the suspension of one of its partners after a tribunal ruled the accountants had shown a “deliberate disregard” for professional ethics in its handling of the sale of defunct carmaker MG Rover.

The Financial Reporting Council's (FRC) tribunal dismissed an appeal by Deloitte against an earlier ruling and said the firm had failed to manage the conflicts of interest created by its role as the advisers to MG Rover and the "Phoenix Four" directors that bought the business out of administration.

The tribunal has the power to impose an unlimited fine and the FRC is pressing for Deloitte to face a £20m penalty, as well as the suspension of Maghsoud Einollahi, a partner at the firm who was involved in the deal.

The tribunal's decision comes after Deloitte was fined $10m by New York's banking regulator this year over its consulting work for Standard Chartered on money laundering issues. It was also investigated over its auditing of the collapsed bank RBS.

MG Rover collapsed in 2005 with the loss of 6,000 jobs after wracking up debts of £1.4bn, having been bought five years earlier from BMW for £10 by businessmen Peter Beale, Nick Stephenson, John Towers and John Edwards.
The so-called "Phoenix Four" were struck off as company directors for a combined 19 years in 2011, having shared £42m in pay and pensions after buying the company in 2000.

Deloitte had acted as adviser to MG Rover on its administration, but controversially also acted corporate advisers to the buyout group.

In its judgment, the tribunal said Deloitte's conduct had "showed in some instances a persistent and deliberate disregard of the fundamental principles and statements of the ICAEW's [Institute of Chartered Accountants England and Wales] code of ethics.

"The outcome of this tribunal sends a strong and clear reminder to all accountants and accountancy firms that they have a responsibility to act in the public interest in the work they undertake," said Paul George, executive director of conduct at the FRC.

Deloitte said it disagreed with the verdict and was concerned at the "potentially serious implications" of the judgement.
"Deloitte's advice, which itself was not criticised, helped to generate over £650m of value for the MG Rover Group, keeping the company alive for five years longer than might have been the case and securing 5,000 jobs in the West Midlands during this period. We take our client and public interest responsibilities extremely seriously and are proud of the value we helped create for the MG Rover Group," said the firm in a statement.

"Given the time this has already taken, we would like to move on."

The tribunal is expected to set out the sanctions it will impose on Deloitte and Mr Einollahi in the next couple of weeks, as well as the payment of costs.

Deloitte has been reported to have earned more than £9m in fees from its work on the MG Rover administration, as well as advising the Phoenix Four.

Source: The Telegraph

Currently reading