KPMG fined £13 million for Silentnight misconduct

KPMG has been severely reprimanded by an independent tribunal for misconduct, after a long-running case relating to the sale of the bedmaker Silentnight. The tribunal determined that one of the firm’s partners helped push Silentnight toward insolvency so it’s buyer, private equity group HIG, could offload its defined pension scheme – something KPMG’s representatives had previously branded a “conspiracy theory.”

According to Silentnight’s website, the company is “the UK's most trusted” brand in its industry. While that might still be true for the bed retailer, its long-time auditor KPMG has seen its reputation take another historic blow in relation to Silentnight’s sale a decade ago.

After 10 years of legal proceedings, the Big Four professional services giant has been lumped with a near-record £13 million fine by an independent tribunal of the Financial Reporting Council. The tribunal also severely reprimanded KPMG, ordering the firm to carry out an independent review to assess its policies, procedures and training programmes, and determine whether similar breaches might be found in a sample of past cases.

The long-running case focused on KPMG’s alleged role in helping push Silentnight toward insolvency in 2011. The firm’s collapse enabled HIG to snap up the bed seller out of administration, while dumping its expensive defined pension scheme for Silentnight’s 1,200 staff. KPMG had denied these claims, and speaking in late 2020, the firm’s representative Mark Phillips QC went as far as to call the idea the auditor had jeopardised Silentnight’s ability to continue trading a “conspiracy theory” and “complete nonsense.”

Eight months later, however, the FRC’s tribunal has ruled that former KPMG Partner David Costley-Wood helped nudge Silentnight into insolvency, benefitting HIG. KPMG was also acting for HIG in the period in question, and it was subsequently able to swoop in to buy up the bed and mattress manufacturer free of its pension liabilities. This conflict of interest represents a major breach of industry conduct.

Elizabeth Barrett, Executive Director of Enforcement at the FRC, said, “The scale and range of the sanctions imposed by the tribunal mark the gravity of the misconduct in this matter… The decision serves as an important reminder of the need for all members of the profession to act with integrity and objectivity and of the serious consequences when they fail to do so.”

Huge fine

The fine the Big Four firm received was one of the largest in UK audit regulation history, close to the record £15 million fine the FRC stung Deloitte with in 2020 for its audit of software firm Autonomy, while KPMG will pay £2.8 million in costs on top of the fine. The government-sponsored Pension Protection Fund (PPF) is now calling for KPMG’s payments to be used to plug any shortfall for Silentnight pension holders. The PPF argues the pension holders have been in limbo for a decade, while investigations relating to the sale were carried out.

The proceeds of a similar settlement with HIG have already been donated to the Silentnight pension scheme. Headed by its founders, Sami Mnaymneh and Tony Tamer, HIG paid out £25 million to the Pensions Regulator over allegations that it had deliberately pushed Silentnight towards failure to buy the company for less than its value.

The news comes after the FRC recently reported that 29% of audits performed by large professional service firms of major companies fail to meet UK standards, and a further 33% are in need of improvement. At the heart of the crisis, the Big Four of Deloitte, PwC, EY and KPMG are once again coming under fire, with less than 60% of KPMG's audits meeting the standards required to be considered top quality audits.