KPMG accused of ‘advancing an untruthful defence’ in Silentnight case

David Costley-Wood, the former head of KPMG Manchester restructuring, “advanced an untruthful defence” at a disciplinary hearing into KPMG’s misconduct in the sale of Silentnight, according to the Financial Reporting Council’s (FRC) Independent Disciplinary Tribunal.

Last month, KPMG was fined £12 million for its audits of Silentnight from August 2010 to April 2011.

Yesterday, the FRC today published the report of the Independent Disciplinary Tribunal detailing its findings of misconduct by KPMG in relation to the sale of the firm.

Mr Costley-Wood and KPMG claimed that Silentnight faced a “burning platform” prior to the Debt Sale Agreement.

The Tribunal held that the nature of the defence advanced by Mr Costley-Wood was untruthful in that he did not believe that there was a burning platform throughout the material period.

It added that the “defence put forward by Mr Costley-Wood in relation to the burning platform was a construct invented by him to assist in his defence”.

Last month, the FRC announced that Mr Costley-Wood was been fined £500,000, excluded from membership of the ICAEW for 13 years and precluded from holding an insolvency licence for the same period.

Alongside the £13 million fine, KPMG were“severely reprimanded” and ordered to appoint an independent reviewer to conduct a Root Cause Review. The review will seek to establish why threats to compliance with the fundamental principle of objectivity were not appropriately identified and safeguarded in the period prior to the appointment of office holders in the Silentnight matter.

KPMG sold its insolvency advice business this year to HIG Capital.

The Tribunal’s Report identified serious failures to cooperate with Executive Counsel’s investigation. It found: 

  • KPMG failed to reveal to Executive Counsel material facts when required, such as the recording of £45,000 of time costs prior to their formal engagement and the ad hoc retainer with Silentnight commencing around 16 August 2010.
  • Mr Costley-Wood created a note of a crucial meeting on 16 August 2010 some 13 months after the event, specifically in response to the Pensions Regulator’s investigation. However, neither Mr Costley-Wood nor KPMG drew to the attention of either the Pensions Regulator or the Executive Counsel that the note was produced over a year after the meeting in question.
  • Notices to produce material are a standard part of any investigation. However, KPMG failed to conduct an electronic search of Mr Costley-Wood’s personal emails, despite two specific requests from Executive Counsel. KPMG instead relied on Mr Costley-Wood’s recollection of events over 9 years earlier. This failure meant Executive Counsel may have lost the opportunity to follow up lines of enquiry because in the intervening period, Mr Costley-Wood’s personal emails which had not been copied to the KPMG email server would have been deleted.

Elizabeth Barrett, executive counsel, said: “KPMG and Mr Costley-Wood compounded their serious Misconduct by advancing a defence to proceedings which was partly untruthful and by failing to cooperate with the investigation. This ruling contains important learnings for Members and Member Firms, both in relation to the original Misconduct and in relation to the conduct expected once an investigation has been commenced.”

Jon Holt, chief executive of KPMG UK, told The Times that the tribunal’s report made for “difficult reading”. He added: “We accept the findings of the tribunal and we regret that the professional standards we expect of our partners were not met in this case and that it has taken over a decade to reach this point.” Costley-Wood’s lawyers declined to comment.

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