The administrators to collapsed electricals retailer Comet Group have been handed a record UK insolvency fine of £1m for failures related to their independence.
Deloitte and two of its former partners, Neville Kahn and Christopher Farrington, who both left the Big Four accountancy firm during a five-year investigation, did not ensure that they were objective as administrators, according to the findings of the Institute of Chartered Accountants in England and Wales.
The ICAEW, a professional body, said adequate steps were not taken to make sure that Deloitte’s previous work advising Comet’s owners did not present a conflict of interest in its role as administrator to the lossmaking electricals retailer. Its 2012 collapse left taxpayers footing a £44m bill and resulted in more than 6,000 staff losing their jobs.
The investigation found that “Deloitte failed to comply with the code of ethics”, notably to ensure that “accepting an appointment does not create any threats to compliance”. It said the firm’s procedure for taking on new clients did not consider the risk of threats to its independence.
The Comet investigation marks the ICAEW’s largest insolvency penalty. Its last substantial insolvency fine against one of the Big Four was in 2015 against EY, which received a £250,000 penalty over work for failed Greek company Hellas Telecommunications II.
Deloitte has been ordered to pay a fine of £925,000, plus the ICAEW’s costs of £890,000. Mr Kahn was severely reprimanded and fined £50,000, while Mr Farrington was issued a reprimand and a £25,000 fine. Neither individual was banned from working as an insolvency practitioner. A third Deloitte administrator — Nicholas Edwards — has not been disciplined.
Deloitte said in a statement that it recognised and regretted that its appointment as administrators of Comet “were below the professional standards expected of us, as were certain elements of our work during the administration”. It added that it had subsequently improved its insolvency processes.
The firm has earned more than £15m in fees to date from the Comet insolvency, including charging more than £10m in fees as administrator and a subsequent £5m as liquidator. It made an additional £1.4m advising OpCapita, the backer of Hailey Acquisitions, Comet’s parent company, which bought the business for the nominal sum of £2 a year before it went bust.
Mr Kahn previously ran Deloitte’s restructuring practice and generated more than £25m in fees from the collapses of high street retailers Woolworths, HMV and Comet. After almost two decades at Deloitte, he quit in 2018 to set up Blandford Capital, a turnround fund that buys distressed small retailers.
Mr Kahn’s co-founder of Blandford is Nathaniel Meyohas, who was one of a group of investors who backed the takeover of Comet before it went under. He previously, with his brother Marc Meyohas, ran Greybull Capital, which owned Monarch Airlines and British Steel.
Mr Kahn said in response to the fine: “I am glad that we have come to an agreement after a very long review process and the whole matter can now be put behind us. Throughout my career I have always tried to achieve the best result for all involved, often in difficult circumstances.”
Mr Farrington left Deloitte in 2017 to join Resolve Group, a financial advisory firm. He could not be reached for comment.
Greybull and hedge fund Elliott Advisors, as well as other investors, gave about £35m to OpCapita, a firm run by former investment banker Henry Jackson, to front the takeover of Comet through its Hailey Acquisitions vehicle.
It became mired in controversy when it ran out of funds only six months later. The funds were lent to Comet through a third-party vehicle that was made the chain’s senior creditor. This meant that OpCapita, Elliott and Greybull received most of the proceeds recovered during the administration, totalling about £59m.
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