In Ireland, we have the so-called Big Four accounting firms, KPMG, Ernst and Young, Deloitte and Pricewaterhouse Coopers. You might think that the likely lads and lassies at these fine firms would bear some responsibility for the financial collapse of the private sector in this State, where these firms were to the fore of auditing accounts and providing very lucrative consultancy services.
But no, apart from two known cases – Quinn Insurance v PwC and IBRC v Ernst and Young – there appears to be no real pursuit of the Big Four. And the second of these two cases, IBRC’s High Court action against E&Y which was commenced last November 2012, has been thrown into doubt with the liquidation of IBRC.
During liquidations, it is generally the role of the liquidator to evaluate the prospects of any outstanding liquidation, to establish if the likely benefits are worth more than the likely costs. Liquidators tend to be conservative in their approach, they cannot afford to take gambles on the unknown using money that should be applied to the benefit of creditors.
E&Y was the auditor to Anglo during the period when Anglo was carouseling €8bn of loans with Permanent TSB at year end to window-dress the accounts and there are issues with the disclosure of director loans and the Maple 10 transaction where €450m was loaned to a group of 10 businessmen to buy Sean Quinn’s shares in Anglo. We don’t know the details of the application or the remedies sought by IBRC but we wouldn’t be surprised if there was a damages claim running into €100s of millions. E&Y denies wrong doing and said at the time last November 2012 that it would be defending itself.
But step back from this for a moment. You now have one of the Big Four, KPMG deciding if to pursue litigation against another one of the Big Four, E&Y, in a case which could potentially wipe out the latter firm even if it does have adequate professional indemnity insurance – after all, what state agency will ever again employ E&Y if a finding of substantial wrong-doing is established?
So, you might have thought there was some conflict of interest in KPMG making a decision on the litigation. “Not at all” says Minister for Finance, Michael Noonan in the Dail this week in response to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty. “The special liquidators do not believe that continuing litigation previously in process represents a conflict of interest. “ says Minister Noonan.
You really couldn’t make this stuff up.
The full parliamentary question and response are here.
Deputy Pearse Doherty: To ask the Minister for Finance his views on the potential conflict in the Special Liquidator of Irish Bank Resolution Corporation, KPMG being responsible for considering the feasibility of outstanding litigation against competing business and former auditor of Anglo Irish bank, Ernst and Young; if he will outline the safeguards that exists to prevent a conflict of interest in respect of consideration of this litigation..
Minister for Finance, Michael Noonan: IBRC’s claims against third parties are unaffected by the liquidation. The Special Liquidators will have the power to continue to manage any IBRC claims that currently exist and will have the ability to assert further claims where they arise. The special liquidators ensure that all potential conflicts of interest identified are fully considered. The special liquidators do not believe that continuing litigation previously in process represents a conflict of interest.