Rollason was accused by the Financial Reporting Council (FRC) of failing to act in line with professional standards in the run-up to the collapse of Farepak just before Christmas 2006. The crash left almost 120,000 customers out of pocket by a total of about £37m.
The hearing was due to begin late last week but the parties reached a last-minute agreement, the details of which were kept secret until today so each side could prepare arguments for proposed sanctions.
The deal turned on abandoning the accusation of “dishonesty” and dropping one of the three original allegations.
Rollason admitted misconduct and recklessness.
The FRC alleged that he failed to act in accordance with the ICAEW ethical code that requires members to behave with integrity in all professional and business relationships. In particular, drafting and distributing a memorandum to his fellow directors at EHR on 2 February 2006 which he knew was misleading and did not reflect EHR’s financial position.
He also signed a letter on 7 February 2006 on EHR’s behalf to Farepak stating that EHR would continue to support Farepak to enable it to meet its liabilities as they fell due, which he knew was misleading. And he signed Farepak’s financial statements, which, the FRC alleges, he knew were misleading because they stated that EHR would continue to support Farepak to enable it to meet its liabilities as they fell due.
The FRC made clear it did not argue that the actions in any way caused the collapse of Farepak as there are “too many hypothetical situations to consider”.
Counsel for the FRC Patrick Lawrence QC said that Ronaldson “made light” of the allegations, but that he had “fallen short” of the requisite standard of “utmost integrity”.
Farepak went into administration when EHR could not secure a loan from its creditors. Later it was revealed that EHR was using money from Farepak’s customers to lend to other parts of the business.
In August this year, creditors received a final payout from joint liquidators BDO of 32p in the pound, which brought the total dividend payment to approximately half of what they were owed.
According to Rollason’s counsel Michael Green, the FRC had given a “fairly one-sided” recollection of the events. He said an earlier suggestion made by the executive counsel that there was a “thin line” between recklessness and dishonesty “undermined the tenor of the whole agreement”.
“He does sincerely apologise for the misconduct. He has been put through the mill for the last seven years. It has been a long journey in which he has been continually under investigation despite being cleared by the High Court,” he added.
The FRC proposed that the appropriate sanction should warrant a severe reprimand, a £50,000 fine and costs of £50,000. It claimed that as Rollason has property abroad worth an estimated £600,000 in total, he could afford the payments. Green, however, argued that his client was “extremely stretched” and in a “desperately difficult situation financially”.
The FRC took issue with the description of Rollason’s situation in the evidence as “unique”. Lawrence said: “Companies get in to financial trouble all the time and it is imperative advice given is of the utmost integrity. This is not a unique case.”
Disagreement between counsels arose over the discussion between the parties in the lead-up to the last-minute deal last week. The FRC initially contended that Rollason should only receive a “small discount” on any penalty, owing to his unwillingness to make any concessions, when offered, at earlier stages of the process.
However, Green argued it was only when the FRC agreed to remove the charge of dishonesty did the “door open to settlement”.
There was also unresolved discussion over the issue of Rollason’s insurance, and whether it would cover his costs. Green said it was currently “unclear” if it would, while Lawrence argued that in the time leading up to the hearing such information should be made available to the tribunal.
Rollason is the only accountant to face a full disciplinary tribunal hearing in connection with the Farepak collapse. The FRC dropped charges against two other accountants – one a CIMA member and the other an ICAEW member – last September.
The tribunal contained members David Blunt QC (chair), George Bardwell (lay member) and Christopher Whittington (ICAEW member) and was held in London’s International Dispute Resolution Centre.