Julia Irvine 22 Nov 2018 10:40am

KPMG to face tribunal over Silentnight

The Financial Reporting Council (FRC) has issued a formal complaint against KPMG and insolvency partner David Costley-Wood over the role they played in negotiating with Silentnight’s creditors ahead of the bed manufacturer’s administration in 2011

The two stand accused of misconduct relating to the engagement between January and April 2011.

The complaint alleges that they accepted and performed the engagement for Silentnight “in circumstances where their professional judgment was compromised (or was likely to be compromised) and their objectivity was impaired (or was likely to be impaired)”. This was in breach of the fundamental principle of objectivity in the ICAEW code of ethics.

It also accuses them of “knowingly or recklessly” helping to make untrue and/or materially incomplete explanations to the Pension Protection Fund (PPF), the Pensions Regulator, Silentnight and its pension scheme trustees in relation to the company. In this case, they were in breach of the ICAEW code’s fundamental principle of integrity.

Silentnight had run into financial difficulties over “an unserviceable level of historic debt and an onerous pensions deficit” of £100m and had brought in the Big Four firm and Costley-Wood to advise on the options available, manage key stakeholders and assist with implementation of options.

The decision was taken to arrange a company voluntary agreement (CVA) but, despite having “overwhelming support” from trade creditors and employees, Silentnight failed to reach agreement with the Pensions Regulator and the PPF and the CVA fell through.

Costley-Wood was one of three administrators, all based in KPMG’s Manchester and Leeds offices, who were appointed in May 2011. They immediately sold the business in a pre-pack deal to Silentnight’s financier US private equity firm HIG Group. At the time Costley-Wood said the deal was the best option because it secured the jobs of Silentnight’s 1,250 employees and placed the business on a surer footing.

However, under the deal, HIG did not take on the pension fund liabilities. The Pensions Regulator launched an anti-avoidance probe since the scheme was unable to meet its liabilities in full.

In 2015, following completion of its investigations, the Pensions Regulator referred KPMG and Costley-Wood to the FRC. The regulator’s formal complaint was served on them in March after its own investigation was completed.

The FRC says that it will convene a disciplinary tribunal to hear the complaint and that a hearing date will be announced in due course.

Commenting on the announcement, a spokesperson for KPMG said, “We believe the FRC’s allegations to be wholly without merit. Given the matter is now subject to formal consideration by a tribunal, we will not be commenting further.”