30 Jul 2012

Deloitte fails to get case struck out

Deloitte is to face a full tribunal hearing in March next year over its role as auditors and advisers to companies in the MG Rover Group

The firm failed to persuade the tribunal to strike out part of the case against it at a preliminary disciplinary hearing of the Accountancy & Actuarial Disciplinary Board’s formal complaint against the firm’s earlier incarnation, Deloitte & Touche, and Maghsoud Einollahi, a retired corporate finance partner.

According to tribunal chairman Sir Anthony Evans QC, the tribunal did not have the jurisdiction to amend the original complaint. But even if it did, “we have come to the conclusion that there is a case to answer”.

The tribunal heard Deloitte accused of acting in the interests of the Phoenix Four – businessmen John Towers, Peter Beale, John Edwards and Nick Stephenson – who bought MG Rover for £10 in 2000, over and above those of the group. The carmaker collapsed in 2005 with debts of £1.3bn but the four, together with chief executive Kevin Howe, walked away with £42m in pay and pensions.

The part of the case in question involved “Project Aircraft”. Around £100m worth of MG Rover’s tax losses were transferred to an aircraft leasing company owned by the Phoenix Four which generated a tax saving of £36m. MG Rover did not benefit from the deal.

The hearing heard that the four received £7.7m out of the saving which was then paid into a pension fund trust set up in Guernsey with help from Deloitte. The firm received £1.925m plus VAT for advising on the transaction.

The firm told the tribunal that the firm and Einollahi did not mishandle the potential conflict of interest in advising on the transaction. Sue Carr QC said that it was not the firm’s fault that the MG Rover board failed to discuss the surrender of the tax losses. She pointed out that not only did the board receive separate legal advice on the issue but a subsequent government report on MG Rover’s collapse did not criticise Deloitte’s role in the affair.

A pre-hearing meeting will now take place in January 2013 followed by the full tribunal hearing on 4 March.


Julia Irvine