KPMG will not refer any work to its former UK restructuring business Interpath Advisory in the latest fallout from the scandal over the sale of bed manufacturer Silentnight to a private equity firm.
The decision is part of KPMG’s attempts to repair its image after a series of fines and investigations.
It has also sought to head off the threat of a ban on bidding for UK government consulting work by temporarily withdrawing from pitching for new public contracts, the Financial Times revealed on Friday.
KPMG sold its 550-person insolvency and restructuring unit, now renamed Interpath Advisory, to private equity fund HIG Capital in May for more than £350m.
Three months later, the Big Four firm was fined £13m by an industry tribunal over a conflict of interest in its former restructuring business when it advised on Silentnight entering administration in 2011.
KPMG’s sale of Interpath allowed the restructuring business to win work from the Big Four firm’s audit clients because it removed the potential for conflicts of interest.
However, KPMG has now decided not to refer any work to Interpath, even though there was no barrier to it doing so under the terms of the sale, according to people familiar with the matter.
Liz Claydon, head of KPMG’s UK deal advisory practice, was one of the people involved in the decision, one of the people said.
Silentnight was advised from 2010 by KPMG’s restructuring advisers. Its collapse enabled HIG, the same fund that later purchased KPMG’s restructuring advisory business, to buy Silentnight through a prepack administration.
The tribunal found KPMG had dishonestly made misleading statements to the UK pensions regulator and Pension Protection Fund, the lifeboat for members of failed company pension plans, to help HIG shed the burden of Silentnight’s pension liabilities as cheaply as possible. The liabilities are expected to be passed to the PPF.
HIG later paid a £25m settlement after the pensions regulator alleged it deliberately caused the unnecessary insolvency of Silentnight. The tribunal findings were against KPMG not Interpath, which hired former Marks and Spencer boss Stuart Rose as an adviser this week.
Some in the industry have speculated about whether KPMG will re-enter the restructuring market.
A three-year, non-compete clause prevents it from accepting formal insolvency appointments but leaves it free to advise companies in earlier stages of financial distress, said people familiar with the deal.
KPMG is now rebuilding its restructuring advisory capabilities, according to people briefed on the matter. It rehired David Fletcher, a restructuring specialist, in June and is investing in its special situations group, which works for clients in financial difficulty. A number of restructuring partners at another firm told the FT they had been approached about joining KPMG.
Asked by the FT in November whether the firm would rebuild its restructuring expertise, KPMG’s UK chief executive Jon Holt said: “We’re not going to invest in [formal] insolvency and so it depends what your definition of restructuring is.”
On whether he would aim to compete with Interpath and its peers, he said: “I don’t think so in a major way. It depends a bit what we do.”
Blair Nimmo, chief executive of Interpath, said KPMG had not told him it would not refer work to his company. Interpath had not formally received any referrals from his former firm since they split, he added.
“I would have no problem with working with KPMG on a specific remit,” he said. “They might feel that for independence they want to put some distance between [us], which is absolutely fine.”
Part of the rationale for leaving KPMG was to gain independence, he added.
KPMG declined to comment.
Additional reporting by Daniel Thomas