KPMG braced for record fine over audit of collapsed Carillion

Published

12 months ago

September 23, 2023

admin

KPMG is in advanced talks with regulators about a record fine running into tens of millions of pounds for failings in its auditing of Carillion, the construction company which collapsed in 2018 with the loss of thousands of jobs.

Sky News has learnt that discussions between the accountancy firm and the Financial Reporting Council (FRC) are close to being finalised, with an announcement possible in the coming weeks.

City sources said the two sides had been negotiating penalties of between £25m and £30m, before the application of a discount on the basis of KPMG’s co-operation with the probe.

After the discount is applied, the total fine is expected to land in the region of £20m, the sources added.

Sources cautioned, however, that the figures still remained subject to change, with one suggesting that they could yet be larger.

Technically, the FRC is conducting two inquiries into KPMG’s work on Carillion, one covering the financial year 2013 and the other encompassing the following four financial years.

If confirmed, it would finally draw a line under the ‘big four’ audit firm’s role in one of Britain’s most notorious corporate collapses of recent years.

Carillion’s insolvency, which came after months of intensive efforts to salvage a business which played a major role in the country’s public sector infrastructure programme, sparked a firestorm of criticism over its directors’ conduct and that of its advisers.

It also served as a catalyst for calls for wide-ranging reforms of the audit profession – many of which have yet to be implemented by the government.

KPMG has already been hit with a huge fine over its role in the Carillion scandal.

In July last year, the firm had a £14.4m sanction imposed on it for misleading the FRC during spot-checks on its audit of the construction group and Regenersis, an outsourcer.

Like its big four rivals Deloitte, EY and PricewaterhouseCoopers, it has also been hit with a multitude of other fines for audit failings in the last five years.

The scope and details of sanctions that will be applied by the FRC to former KPMG partners involved in the Carillion audit was unclear this weekend.

Earlier this year, KPMG and the Official Receiver agreed to settle a £1.3bn claim on behalf of Carillion’s creditors alleging negligence on the part of the audit firm.

The terms were not disclosed.

The fallout from the company’s collapse has also ensnared former board members.

In July, Zafar Khan, who served as its group finance director for less than a year prior to its implosion, was handed an 11-year boardroom ban by the government’s Insolvency Service.

It was the first such ban imposed under the Company Director Disqualification Act against any former Carillion executive, although proceedings against a number of others, including former chief executive Richard Howson, remain ongoing.

In total, eight former Carillion directors are facing bans following the launch of legal proceedings authorised by Kwasi Kwarteng, the then business secretary, in January 2021.

Last year, Mr Khan, Mr Howson and Richard Adam, who also served as Carillion’s finance chief, were fined a total of close to £1m for issuing misleading statements to investors about the state of the company’s finances.

The trio were reported to be appealing against the fines imposed by the Financial Conduct Authority.

Carillion, which was involved in building and maintaining hospitals and roads, and delivering millions of school meals, went bust owing close to £7bn.

At the time of its collapse, Carillion held approximately 450 construction and service contracts across government.

It employed more than 43,000 people, including 18,000 in the UK.

In a scathing report on the company’s corporate governance, the Commons business select committee said: “As a large company and competitive bidder, Carillion was well-placed to win contracts.

“Its failings in subsequently managing them to generate profit was masked for a long time by a continuing stream of new work and… accounting practices that precluded an accurate assessment of the state of contracts.”

KPMG served as Carillion’s auditor for almost two decades, earning a total of £29m for its audit work.

Last month, the Financial Times reported that the government was set to omit audit reform legislation from the King’s Speech in November.

Under plans already agreed to by ministers, the FRC would be replaced by a statutory regulator called the Audit, Reporting and Governance Authority (ARGA).

On Saturday, both KPMG and the FRC declined to comment.

Business

Telegraph bidders given new deadline as £100m Spectator sale looms

Published

14 hours ago

September 8, 2024

admin

Telegraph bidders given new deadline as £100m Spectator sale looms

The remaining bidders for The Daily Telegraph have been given a deadline for revised bids for the right-leaning newspaper as its stablemate, The Spectator magazine, clinches a £100m sale to the hedge fund tycoon Sir Paul Marshall.

Sky News understands that RedBird IMI, the Abu Dhabi-backed entity which was thwarted in its efforts to buy the media titles by a change in ownership law, has asked at least three parties to table second-round offers on 27 September.

It comes after bidders began holding talks with Telegraph bosses last week about the company’s business plan.

Money latest: Best paying jobs after university

The remaining parties are understood to include Sir Paul and National World, the London-listed media group run by newspaper veteran David Montgomery.

At least one other party whose identity has yet to be disclosed publicly is also in contention to buy the newspapers.

A separate bid orchestrated by Nadhim Zahawi, the former chancellor, is the subject of bilateral discussions with IMI, the Abu Dhabi-based venture which wanted to take a controlling stake in the British media assets before being blocked by the government.

Sky News revealed exclusively last month that Sir Paul was the frontrunner to buy The Spectator, which along with the Telegraph titles was owned by the Barclay family until their respective holding companies were forced into liquidation last year.

His deal for The Spectator, which will be implemented through Old Queen Street Ventures, will be announced this week, and potentially as early as Monday.

It will also include the art magazine Apollo.

RedBird IMI, a joint venture between IMI and the American investor RedBird, paid £600m last year to acquire a call option that was intended to convert into equity ownership.

A sale of The Spectator for £100m would leave it needing to sell the Telegraph titles for £500m to recoup that outlay in full – or more than that once RedBird IMI’s fees and costs associated with the process are taken into account.

One source said the price RedBird IMI had secured for The Spectator had exceeded expectations and left it well-placed to break even on its investment.

“The original decision to pre-empt an auction has been vindicated by the level of interest since it started,” the source said.

Of the unsuccessful bidders for the Telegraph, Lord Saatchi, the former advertising mogul, offered £350m, while Mediahuis, the Belgian publisher, also failed to make it through to the next round of the auction.

Lord Rothermere, the Daily Mail proprietor, pulled out of the bidding earlier in the summer amid concerns that he would be blocked on competition grounds.

Sky News recently revealed that Mr Zahawi had sounded out Boris Johnson, the former prime minister, about an executive role with The Daily Telegraph if he succeeded in buying the newspapers.

IMI is controlled by the UAE’s deputy prime minister and ultimate owner of Manchester City Football Club, Sheikh Mansour bin Zayed Al Nahyan.

The Lloyds debt, which totalled more than £1.15bn, was repaid by RedBird IMI on behalf of the family.

RedBird IMI’s attempt to take ownership of the Telegraph titles and The Spectator was thwarted by the last Conservative government’s decision to change media law to prevent foreign states exerting influence over national newspapers.

Spokespeople for RedBird IMI and Sir Paul declined to comment.

Business

Bank of London finalises capital-raising after HMRC winding-up petition

Published

1 day ago

September 7, 2024

admin

Bank of London finalises capital-raising after HMRC winding-up petition

A clearing bank launched just three years ago is raising tens of millions of pounds of fresh funding just days after it was served with a winding-up petition by the UK tax authorities.

Sky News understands that The Bank of London, which attempted to rescue Silicon Valley Bank UK last year, is progressing plans for the capital-raising, which one person close to the company said could secure “up to £50m”.

The precise figure was unclear this weekend.

The new funding is understood to be being lined up from a number of investors including an entity called Aphorism Holding, according to the person.

Nada Hadadi, a wealthy investor who was suggested as being the primary source of the capital, has in fact only contributed a six-figure sum.

News of the company’s capital-raising plan comes days after it announced that Anthony Watson, its founder and chief executive, was stepping down to become a senior adviser and non-executive director of its holding company.

HM Revenue & Customs had issued a winding-up petition against The Bank of London’s holding company over unpaid taxes.

The liability has now been settled, according to an insider.

It described the issue as a “simple administrative handling delay caused by an internal miscommunication, which has been addressed”.

“We spoke with HMRC on Friday morning, and they are currently updating the filing.

“While this update may take a couple of days to reflect online, it is in process.”

The Bank of London claims to have amassed 4,500 clients since its launch but was outgunned last year by HSBC in a weekend race to rescue SVB UK.

Business

Body Shop’s remaining stores saved after rescue deal struck

Published

2 days ago

September 7, 2024

admin

Body Shop's remaining stores saved after rescue deal struck

More than 100 Body Shop stores have been saved from closure after a deal was struck to rescue one of Britain’s best known high street chains.

The well-known retailer was bought out of administration by a consortium led by “Cosmetics King” Mike Jatania.

The millionaire tycoon’s investment firm Aurea announced the completion of the acquisition on Saturday.

Money latest: Best paying jobs after university

Mr Jatania and Charles Denton, former chief executive of beauty brand Molton Brown, will head the new leadership team.

In a statement, Aurea said the deal would “steer the Body Shop’s revival and reclaim its global leadership in the ethical beauty sector it pioneered”.

It is understood there are no immediate plans to shut any of its 116 remaining UK stores.

Sky News revealed earlier this week that Aurea was poised to finalise the buyout as it lined up more than £30m in new financing.

Mr Jatania previously ran Lornamead – the owner of personal care brands including Lypsyl, Woods of Windsor, Yardley, and Harmony haircare – which he sold to rival Li & Fung for around £155m more than 10 years ago.

The Body Shop fell into administration in early February after previous forecasts for how much funding it would need to keep going proved too low.

In the weeks that followed, administrators warned hundreds of jobs would be lost and dozens of shops closed.

The business had employed about 1,500 store workers before its collapse into insolvency.

The company’s administration underlined the decline of the high street stalwart.

It was founded in 1976 by Dame Anita Roddick, trading out of a small shop in Brighton, which made its name selling cruelty-free fair trade products.

Mr Jatania, co-founder of Aurea, said: “With the Body Shop, we have acquired a truly iconic brand with highly engaged consumers in over 70 markets around the world.

“We plan to focus relentlessly on exceeding their expectations by investing in product innovation and seamless experiences across all of the channels where customers shop while paying homage to the brand’s ethical and activist positioning.”

Charles Denton, chief executive of the Body Shop, said: “We believe there’s a sustainable future ahead and working closely with the management team we aim to restore the Body Shop’s unique, values-driven, independent spirit.”