Subprime lender Cattles has launched a multimillion-pound claim for damages against PwC, alleging “audit negligence” for failing to spot major holes in its accounts in 2006 and 2007
Cattles said the failure resulted in it piling up £1.6bn in debts and liabilities, bringing the FTSE 250 firm to the brink of collapse and forcing it to suspend shares in 2009.
A spokesman for Cattles said, "After a thorough, independent and objective review of the merits of this claim, it is clear to us that PwC were negligent in their role as auditors. As a consequence, Cattles and its creditors suffered very significant losses."
Two former Cattles finance directors, John Corr and Peter Miller, were fined and banned by the Financial Services Authority for misleading financial reports.
PwC said it would fight the claims in the High Court in London.
“We are disappointed that this claim has been issued given the FSA's censure of the company for market abuse as well as the FSA's conclusion that certain directors of Cattles were found to have acted without integrity in discharging their responsibilities,” the firm said in a statement.
"This is an inflated and misguided claim and, as we have made clear before, we will vigorously defend our work."
A supervisor representing Cattles’ creditors said that PwC should not have signed off the 2006 and 2007 financial statements of the group, which was once worth £1bn.
“As a consequence, the financial statements fundamentally mis-stated the financial position of the group. In particular, if the impairment provisions had been properly audited, it would have revealed that the group’s business, over 90 per cent of which comprised a loan book, was not financially viable,” it added.
The firm efused to sign off Cattles' 2008 annual report in February 2009, following which the company's share price dropped by 74%.
There is also an ongoing Financial Reporting Council investigation into PwC’s audit work for Cattles. The Accountancy and Actuarial Discipline Board is investigating the 2007 annual financial statements, the June 2008 interim financial statements and the 2008 and 2009 public statements.
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