Deloitte has been severely reprimanded for violating a code of ethics during the administration of Comet in 2012, while ex partner Neville Kahn has been fined £50,000 for individual failings.
The ICAEW, which regulates insolvency practitioners, has ordered Deloitte to pay a £925,000 fine, plus the regulator’s own costs of £890,000, as it concluded a five-year long investigation into Deloitte’s conduct.
As a record fine issued against an insolvency and restructuring practice for failing to comply with the code of ethics, it could be a landmark moment in the increasing pressure on insolvency firms to comply with conflict of interest rules.
"The ICAEW said the Comet administrators failed in their ’duty to comply with the fundamental principles of objectivity and/or professional competence’."
According to the ICAEW, Deloitte “failed to comply with the code of ethics” as it didn’t ensure procedures for taking on the appointment as administrators of Comet, back in 2012, didn’t create threats to compliance.
The investigation found that as Deloitte became administrators of Comet, it failed to provide independent review partners with all the relevant information, that would show whether taking the appointment risked breaching the code of ethics.
As well as Kahn, the ICAEW severely reprimanded another former Deloitte partner, Christopher Farrington. While Kahn was handed a £50,000 fine, Farrington was fined £25,000.
The ICAEW said they failed in their “duty to comply with the fundamental principles of objectivity and/or professional competence”.
The ruling stated that Kahn, who was managing partner for financial advisory at Deloitte UK, did not take reasonable steps to identify if his acceptance of the Comet job threatened his compliance with the code’s “fundamental principle of objectivity.”
During his appointment, Kahn agreed to remove an asset-backed lending agreement between Comet and another company, from a list of connected party transactions that was attached to a Proposals to Creditors document.
The ICAEW said Kahn didn’t take “reasonable steps” to investigate whether the transaction should have been included in the list.
The regulator also that during his appointment, Kahn didn’t take reasonable steps to investigate the circumstances of the acquisition of Comet by Hailey Acquisitions Ltd. In particular, he didn’t investigate the validity of the repayment by Comet to another company of an unsecured £115m revolving credit facility.
A statement from the ICAEW said: “This case should send a strong message to insolvency practitioners and their firms of the importance of demonstrating the highest standards and putting in place the appropriate and robust processes to ensure compliance with the codes of conduct.
“We will not hesitate to investigate and take robust action where we consider there is evidence of conduct falling short of that which is expected of our members and member firms.”
While Comet has become an example of the risks of breaching the code, Credit Strategy’s Turnaround, Restructuring & Insolvency (TRI) Conference, and the TRI Best Practice Case Study series being launched this year, will showcase outstanding achievement in the profession, with case studies published in detail.
The full ruling on Deloitte can be found on the ICAEW’s website.
A Deloitte spokesperson said: “We recognise and regret that our engagement take-on processes in relation to the appointment of our partners as administrators of Comet Group Limited in 2012 were below the professional standards expected of us, as were certain elements of our work during the administration.
"The shortcomings in processes were addressed in 2016. We are committed to complying with the ICAEW’s Code of Ethics in order to maintain the highest standard of professional conduct.”