Why MPs are right to speak up for Silentnight pension scheme members - Greg Wright

KPMG was found to have had a conflict of interest when it acted as adviser to both the bed manufacturer Silentnight and a private equity company which had sought to buy the British firm in 2011.

To quote the independent tribunal ruling: “It described the history of KPMG’s involvement with Silentnight in this case as deeply troubling as KPMG failed to act solely in its client’s interests, acted in fundamental respects contrary to those interests and in those of a party whose interests were diametrically opposed to those of Silentnight.”

It added: “In determining the sanctions, the tribunal considered the misconduct was very serious, noting that to a professional accountant the conflicts of interest should have been obvious and that the misconduct risked the loss of significant sums of money.

“It put at risk Silentnight’s ability to survive and tens of millions of pounds of creditors’ claims, potentially exceeding £100m as the liability to the pension scheme would crystallise.

“The misconduct potentially adversely affected a significant number of people. The majority of the membership of the pension scheme comprised factory workers, many of whom had worked for Silentnight and contributed to the pension scheme for much of their working life. This was a foreseeable consequence of the plan to ‘dump’ the pension scheme into the PPF (Pension Protection Fund).”

These are strong words from the accountancy regulator. Following the ruling’s publication last year, KPMG said the report made “difficult reading” and it accepted the findings and regretted that professional standards expected of its partners were not met in this case.

But what of the Silentnight factory workers who had been hoping for a comfortable retirement? Members of the All Party Parliamentary Group on Fair Business Banking (APPG) believe the fine should be used to compensate pension holders who have been shamefully “ripped off” by forces beyond their control.

However, MPs were disappointed by the response from Michael Izza, the chief executive of the Institute of Chartered Accountants in England and Wales (ICAEW).

In his letter to Kevin Hollinrake MP, who is the co-chairman of the APPG, Mr Izza said: “While the board had sympathy with the way in which members of the pension scheme may be adversely affected by the administration of Silentnight in 2011, it noted that the accountancy scheme – which is the relevant regime governing how cases are dealt with by the FRC – was never intended to operate as a compensation scheme for third parties who may have suffered losses as a result of actions of ICAEW members and member firms.”

A spokesman said the fine money was not a windfall for the ICAEW. The money from FRC fines comes into the ICAEW reserves where it is used to fund strategic projects “which address public interest matters and support the development of the wider profession”, the spokesman said.

“In recent years this has included social mobility programmes such as BASE and RISE, our international capacity building programme, and our educational films.”

“As the largest insolvency regulator in the UK, we agree that reform is long overdue.

Last year, The Pensions Regulator agreed a settlement in its anti-avoidance case against the current owners of Silentnight. As a result, HIG Group paid £25m to the scheme. The targets of TPR’s action, which included certain entities, members and executives, or former members and executives, of the HIG Group, disputed the case.

At the time a source close to HIG stressed that the settlement, which HIG has made with no admission of guilt, draws a line under a 10-year dispute between parties with diverging opinions.

The settlement, plus the additional recoveries from the liquidation, will not eradicate the scheme’s deficit on a Pension Protection Fund (PPF) basis, the regulator said.

The pension scheme has 1,200 members and MPs are right to focus attention on their financial wellbeing. This saga shows the need for the Government to press ahead with its plans to create a single regulator to improve confidence in the insolvency sector. All honest professionals must welcome scrutiny, from a regulator with an iron fist.