Financial Reporting Council sanctions KPMG and a former partner in relation to Silentnight

A disciplinary tribunal established under the Financial Reporting Council’s Accountancy Scheme has severely reprimanded KPMG and imposed a fine of £13 million (one of the largest ordered by the tribunal) following findings of misconduct by KPMG and its former partner, David Costley-Wood, in relation to Silentnight, the bed manufacturer.  The tribunal has ordered KPMG to appoint an independent reviewer to review, among other matters, the root causes of its failure to identify and safeguard against the threats to compliance with the Objectivity principle in the ICAEW’s Code of Ethics.  The tribunal has excluded Mr Costley-Wood from membership of the ICAEW, and precluded him from holding an insolvency licence, for 13 years.  It has also fined him £500,000 and issued a severe reprimand.

Following a four-week hearing in November and December 2020,  the tribunal found that KPMG and Mr Costley-Wood had committed conduct in the period 16 August 2010 to 4 April 2011 that fell significantly short of the standards reasonably to be expected of a Member Firm and a Member and had brought discredit (or were likely to bring discredit) to KPMG, to Mr Costley-Wood and to the accountancy profession.  In particular, Mr Costley-Wood and KPMG (through Mr Costley-Wood) breached the fundamental principles of Objectivity and Integrity under the ICAEWs’ Code of Ethics in the course of advising Silentnight in respect of restructuring options to address its financial difficulties.  The principal failings related to advising both Silentnight and HIG (a private equity fund) in relation to a proposed acquisition of Silentnight by HIG at a time when there was a conflict between the interests of Silentnight and HIG; assisting HIG with a strategy to drive Silentnight to the brink of an insolvency process with a view to passing Silentnight’s pension scheme to the Pension Protection Fund at the expense of the pension scheme members and levy payers, for the benefit HIG; and dishonestly advancing or associating themselves with untrue or misleading or materially incomplete statements to the Pension Protection Fund, the Pension Regulator, Silentnight and the trustees of the pension scheme in order to assist HIG in its efforts to enable Silentnight to shed its liability to the pension scheme as cheaply as possible.  The tribunal found that Mr Costley-Wood’s loss of objectivity underlay or drove much of what the respondents did in relation to Silentnight in the relevant period.  Silentnight went into administration in May 2011 (there is no finding that this was as a result of the respondents’ misconduct).

Richard Coleman QC, Nicholas Medcroft QC and Samuel Ritchie acted for the Financial Reporting Council. A statement of the Financial Reporting Council which summarises the tribunal’s findings and sets out the sanctions is available here and the tribunal’s full report, published on 13 October 2021, can be found here.