KPMG has been fined £13m for its role in the 2011 sale of Silentnight to HIG, with the regulator concluding that a former KPMG partner ‘assisted with a strategy designed to drive Silentnight into an insolvency process’.
A Financial Reporting Council tribunal found that David Costley-Wood, former KPMG partner and head of KPMG Manchester Restructuring, ‘assisted with a strategy designed to drive Silentnight into an insolvency process, or to the brink of such a process with a view to passing Silentnight’s pension scheme to the Pension Protection Fund at the expense of pension scheme members and PPF levy payers. In this context Costley-Wood provided advice and assistance to HIG so that it could acquire Silentnight as an otherwise profitable business without the burden of the pension scheme liabilities.’
The FRC continues: ‘The respondents [KPMG and Costley-Wood] failed, in addition, to consider the self-interest and familiarity threats which arose from their relationship with HIG and from their desire to nurture that party as a client and keep them “onside”. Costley-Wood was conscious of the importance of the potential relationship of HIG to KPMG throughout. The respondents’ loss of objectivity underlay or drove much of what they did in relation to Silentnight throughout the relevant period, including assisting and advising HIG in its plan to acquire Silentnight free of the pension scheme liability from the summer of 2010.
‘Costley-Wood dishonestly advanced and associated himself with untrue and misleading and/or materially incomplete statements to the PPF, The Pensions Regulator, Silentnight and the trustees of the Silentnight pension scheme as to the causes of Silentnight’s difficulties in order to assist HIG in its efforts to enable Silentnight to shed its liability under the pension scheme as cheaply as possible.
‘To a professional accountant the conflicts of interest should have been obvious and that the misconduct risked the loss of significant sums of money. It put at risk Silentnight’s ability to survive and tens of millions of pounds of creditors’ claims, potentially exceeding £100m as the liability to the pension scheme would crystallise. The misconduct potentially adversely affected a significant number of people. The majority of the membership of the pension scheme comprised factory workers, many of whom had worked for Silentnight and contributed to the pension scheme for much of their working life. This was a foreseeable consequence of the plan to “dump” the pension scheme into the PPF.
‘The tribunal considered the respondents’ misconduct in respect of advancing or associating themselves with untrue, misleading or incomplete statements to the PPF, TPR, and the trustees to be especially egregious given that they knew they had to be open and transparent with these parties and that they intentionally sought to mislead them in order to assist HIG in its efforts to enable Silentnight to shed its liability under the pension scheme as cheaply as possible.’
In March TPR agreed a £25m settlement in its anti-avoidance case against HIG. In 2014 TPR had sought £17.2m, which by 2020 had risen to £32.1m. At what is thought to be the final valuation of the pension fund before the administration, it had an ongoing deficit of £39.5m and a buyout deficit of £99.8m in December 2008. The pension scheme had been set up in 1956 and had about 1,200 members at the time of the administration.
KPMG’s fine is the second largest imposed by the FRC. It also imposed costs of more than £2.75m.
Image: KPMG.
