UK accountants Mazars and one of its partners have been ordered to pay £2m (€2.5m) in fines and costs by the Financial Reporting Council (FRC) after failing in the advice it gave the pension fund of UK drinks company First Quench Retailing in 2007. 

A disciplinary case against Mazars and its partner Richard Karmel was settled in an agreement with the FRC, which was approved by the council’s tribunal.  

Mazars and Karmel admitted their conduct had fallen well short of expected standards when advising the First Quench pension fund on a proposed replacement of the fund’s sponsoring employer, the council said. 

They admitted to allegations in the FRC’s formal complaint that they had failed in their professional competence and due care, objectivity and confidentiality in serving their client.

Paul George, the FRC’s executive director of conduct, said: “This outcome sends a clear message to all accountants and accountancy firms carrying out advisory work.” 

They not only had a responsibility to carry out their work diligently and according to the applicable technical standards, but they also had to consider the different and opposing commercial interests of all those involved, he said.

“Accountants must not allow undue influence of others to override their professional judgements and they must have a clear understanding of who their client actually is,” George said.

First Quench is a wholly owned subsidiary of UK drinks company Threshers. 

In July 2007, Threshers’ ownership was transferred, so that three quarters of its share capital was owned by private equity firm Vision Capital, with the remainder held by pensions insurer Pension Corporation.

Pension Corporation then proposed that the assets and liabilities of the First Quench pension fund — which was variously valued at £60m to £75m with a deficit estimated at £22m to £28m — were transferred to another fund held by a Pension Corporation company. 

It was this planned move on which Mazars advised the trustee of the pension fund.

In its formal complaint against Karmel and the firm, the FRC said that even though Karmel had been engaged to work for the trustee of the pension fund, he had repeatedly allowed his judgement to be overridden by commercial interests of Pension Corporation.

In the settlement, the parties agreed that the misconduct risked the loss of significant sums of money and potentially adversely affected the beneficiaries of the pension fund — but did not cause actual loss.

The FRC said the misconduct was significant, but not dishonest or deliberate.

Mazars agreed to pay a fine of £750,000 and receive a severe reprimand, as well as £1,120,000 in costs.

Karmel was fined £50,000 and was to pay £80,000 in costs as well as receiving a severe reprimand himself.

Fines had been reduced from original amounts to reflect admissions made by the firm and Karmel, the FRC said.

First Quench Retailing went into administration in 2009.

A spokesman for Pension Corporation told IPE: “In August 2013 the FRC announced it was not pursuing any action relating to ’actuaries concerned’ in these historic events.

“In May 2013 Pension Insurance Corporation was delighted to have been chosen after an open market competition to insure the First Quench pension scheme in a £160 million transaction, securing member benefits for the long-term as well as providing a benefit uplift.”

The transaction was completed after Independent Trustee Services (ITS) agreed to the buy-in deal with PIC, a company under the Pension Corporation umbrella brand.

 

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