Accountancy firm Deloitte has lost its appeal against a ruling that it failed to manage conflicts of interest in its advice to collapsed carmaker MG Rover Group, in a decision it said could force all accountants to examine what advice they can give.
MG Rover was put into administration in 2005 with debts of 1.4 billion pounds ($2.1 billion) and the loss of 6,000 jobs. Four of its directors - the "Phoenix Four" - had set up the company Phoenix to buy the loss-making British carmaker for a token 10 pounds five years earlier.
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The Financial Reporting Council (FRC), which regulates accountants, had ruled that Deloitte and an employee, Maghsoud Einollahi, had failed to properly manage conflicts of interest.
Deloitte and Einollahi had acted as corporate finance advisers to firms involved with MG Rover and the Phoenix Four, including giving tax advice, while Deloitte was also auditing MG Rover.
The accountancy firm, one of the world's "Big Four" accountants, was also accused of presenting itself as advising MG Rover when in fact it was advising the Phoenix Four.
Deloitte's challenge to the FRC's ruling was heard on Monday. The regulator said in a statement its ruling was upheld in a hearing at the International Dispute Resolution Centre.
It said Deloitte and Einollahi showed in some instances a "persistent and deliberate disregard" of the UK accounting body ICAEW's code of ethics.
"The outcome of this tribunal sends a strong clear reminder to all accountants and accountancy firms that they have a responsibility to act in the public interest in the work they undertake," FRC executive director for conduct Paul George said.
Deloitte, which the FRC said earned 9.4 million pounds from the misconduct, said it was surprised and disappointed by the outcome and disagreed with its main conclusions.
"This could have adverse consequences on adviser/client relationships more broadly, reduce the choice and quality of service delivered and be detrimental to UK business at a time when the focus on jobs and growth is paramount," it said.
The tribunal also heard what sanctions the FRC wants to impose and the outcome is due at a later date. It has powers to impose unlimited fines and suspensions.
The FRC wants to fine Deloitte between 15 and 20 million pounds, impose a severe reprimand, and make it pay costs of four million pounds.
Einollahi should be banned from practising accountancy for six years and fined an amount based on how much he profited from the misconduct, it said.
Deloitte, which said its advice kept MG Rover alive for a five extra years, said it should be fined no more than a million pounds. Einollahi has retired and Deloitte said he was not commenting.
The FRC said the tribunal found all 13 of its allegations proven, including that Deloitte and Einollahi failed to consider the public interest regarding the transfer of the carmaker's tax losses to a company indirectly controlled by the Phoenix Four.
Deloitte will meet with the ICAEW and Confederation of British Industry business lobby to discuss a possible appeal to help clarify what public interest means. "We take our public interest obligations seriously in everything we do," it said in its statement on Monday.