KPMG fined £13m for Silentnight deal

One of the Big Four accounting organisations has been fined £13m by the regulator, “severely reprimanded” and ordered to appoint an independent reviewer. As part of this process, the reviewer will conduct a Root Cause Review to establish why threats to compliance were not identified and safeguarded against in relation to this deal. In addition to this, they will look at the various policies, procedures and training programmes relating to KPMG advisory service practices. 

David Costley-Wood, formerly a partner and head of KPMG Manchester Restructuring, has also been sanctioned. He’s been fined £500,000, severely reprimanded, been excluded from membership of the Institute of Chartered Accountants in England and Wales for 13 years, and precluded from holding an insolvency licence for the same period.

This all stems off the back of a referral from The Pensions Regulator (TPR) and an investigation undertaken by the the Accountancy Scheme regarding Costley-Wood’s conduct in relation to the Silentnight group of companies between August 2010 and April 2011. Following this, a tribunal made findings of misconduct following a four-week hearing between November and December 2020, with the sanctions determined following a hearing in June 2021.

The tribunal made its findings of misconduct in respect of breaches of objectivity and integrity, describing KPMG’s involvement with Slientnight as “deeply troubling.” It also said the firm failed to act solely in its client’s interests, concluding that the lack of objectivity in this matter went to the core of the relationship between Silentnight and KPMG. 

It also found that, between 16 August 2010 and 14 January 2011, Costley-Wood advised or assisted both companies regarding a proposed acquisition of Silentnight by HIG at a time when there was a conflict of interest between the interests of the two firms. As a result the respondents’ judgement was compromised and objectivity impaired.  

According to the findings of the tribunal, Costley-Wood assisted with a strategy designed to drive Silentnight into or on the brink of an insolvency process - which it describes as a “Burning Platform”. This was done with the view of passing Silentnight’s pension scheme to the Pension Protection Fund (PPF) at the expense of pension scheme members and PPF levy payers. 

In addition to this, the respondents failed to consider the self-interest and familiarity threats that 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.

Costley-Wood, it says, also dishonestly advanced and associated himself with untrue and misleading or materially incomplete statements to the PPF, TPR, Silentnight and the trustees of the Silentnight pension scheme as to the causes of Silentnight’s difficulties. The tribunal says this was done in order to assist HIG in its efforts to enable Silentnight to shed its liability under the pension scheme as cheaply as possible. 

As KPMG is legally liable under the accountancy scheme for the conduct of Costley-Wood, the findings of misconduct made against the professional services firm by the tribunal regarding the same matters. One further allegation made by the FRC was, however, not upheld by the tribunal. 

In determining the sanctions, the tribunal said the misconduct was “very serious”, stating that - to a professional accountant - the conflicts of interest should have been “obvious” and risked the loss of significant sums of money. It also considered it to have put Silentnight’s ability to survive and tens of millions of pounds of creditors’ claims at risk.

Commenting on the sanctions, the FRC’s executive counsel and executive director of enforcement Elizabeth Barrett said: “The scale and range of the sanctions imposed by the tribunal mark the gravity of the misconduct in this matter. The decision serves as an important reminder of the need for all members of the profession to act with integrity and objectivity and the serious consequences when they fail to do so.”  

In addition to its sanctions, the tribunal ordered that KPMG pay £2.45m towards executive counsel costs of the investigation together with the costs of the tribunal - amounting to a further £305,814.   

Credit Strategy has reached out to KPMG for comment. In response, a spokesperson for the firm said: “We acknowledge the tribunal’s findings and regret that the professional standards we expect of our partners and colleagues were not met in this case. David Costley-Wood has retired from the firm and whilst we no longer provide insolvency services, our broader controls and processes have evolved significantly since this work was performed over a decade ago. 

“As a firm, we are committed to the highest standards and continually invest in our people and procedures to ensure potential conflicts of interest are identified and managed effectively. We welcome the additional review process outlined by the FRC and remain focused on building trust and delivering work of the highest quality.”