Auditors Deloitte and one of its partners failed to meet professional standards in advising the Phoenix Four consortium who bought MG Rover Group before the company collapsed in 2005 with the loss of 6,500 jobs and GBP1.4bn (US$2.2bn) in debts.
Deloitte, which has always denied wrongdoing, was paid GBP31m in fees; it now faces a formal disciplinary hearing for alleged misconduct following the filing of a complaint by the Accountancy and Actuarial Discipline Board (AADB) which last year opened a probe into Deloitte and Maghsoud Einollahi, who worked in the auditor’s corporate finance department which advised MG Rover group companies.
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The complaint will be heard before an independent tribunal and, if upheld, Deloitte and Maghsoud could face unlimited fines.
There was an outcry when it emerged that the Phoenix Four, who bought MG Rover for GBP10, paid themselves GBP40m in salaries and pensions before the company collapsed.
The four faced no criminal charges but were disqualified from being directors of any company for up to six years.
The AADB said Deloitte and Einollahi had acted as corporate finance advisors to various companies involved with MG Rover and the Phoenix Four. During this time Deloitte was also auditor for MG Rover.
The regulator said Deloitte and Einollahi failed to consider adequately the public interest and the potential for there to be different commercial interests between the Phoenix Four, MG Rover, associated companies and shareholders.
They also failed to consider properly the conflicts of interest and “self-interest threat” while advising the Phoenix Four while maintaining client relationships with MG Rover, the AADB said.
“The AADB is not alleging misconduct in relation to the audit work performed by Deloitte for the MG Rover Group,” the regulator said.
Deloitte said in a statement it was disappointed that the AADB had taken the view that limited aspects of its advisory work relating to two transactions in 2001-2002 fell short of acceptable standards.
The European Union has proposed a draft law that would in some cases force the Big Four accounting firms of Deloitte, Ernst & Young, KPMG and PwC to separate their auditing and advisory services to avoid conflicts of interest and make it easier for smaller rivals to compete.
