Deloitte is fined for its role in the bankruptcy of Comet Group
In 2012, the investment funds Elliott Advisors, OpCapita and Greybull Capital, with the help of Deloitte, earned £100m from the bankruptcy of British electronics retailer Comet Group, at the expense of British taxpayers who lost £44m and other creditors. Deloitte is now losing a total of £2 billion. (penalty £925,000 + £890,000 ICAEW costs).
Deloitte is fined almost £1 billion for its role in the bankruptcy of Comet Group.
At 2 a.m. in November 2011, a group of private investors structured a complex deal to buy Comet Group, a retail chain of electronics and home appliances founded in 1933, which in the 80 years of its existence in the British market has gone through many ups and downs.
The £2 symbolic price paid by Elliott Advisors, OpCapita and Greybull Capital reflected the deplorable state of the company in an industry then suffering from strong competition from online retailers.
In the same week, Best Buy, an American electronics retailer, closed all its large UK stores to focus on saving its business in the US.
However, for Comet, this deal proved to be only a stay of execution - in less than a year it went bankrupt. Almost 7,000 people lost their jobs, taxpayers paid a loss of £50m out of their pocket and investors left with profits of over £100m.
The only penalties that all this led to at the time were a £1m fine for Deloitte, which was an administrator (the British equivalent of the external manager) and earned £15m on these services. It was also found that Deloitte failed in its role as an independent and objective administrator because of its close relationship with retail buyers.
The Financial Times have analysed previously unknown details of the ICAEW investigation and recently published court documents which illustrate the role played by Deloitte and its leading restructuring specialist, Neville Kahn, who condoned the intentions of his investment clients towards Comet.
The documents shed light on how private equity funds and hedge funds can make huge profits from dying companies with little risk to themselves.
Deloitte is under attack.
The question of the legality of the £186 million bond that Hailey used to buy out Comet is at the heart of a conflict of interest that ICAEW is investigating.
To date, Haily has received £62 million from external management.
However, Comet still owes HMRC (UK Revenue Service) £26m and more than £200m to landlords and suppliers. In total, all of these lenders to Comet have so far recovered only £500,000.
It now turns out that in 2018 the ICAEW was trying to block further payments to Haily which Deloitte was making as the external manager.
Deloitte has gone to court to prevent the ICAEW from "unlawful acts that obstruct bankruptcy proceedings", according to court records.
The court hearing was held in camera and the ruling was not made public until this month. According to the decision, the judge appointed a new independent external administrator to investigate the legality of the bail demanded by Hailey.
The judge also said it was "obvious" that the Deloitte administrators should have "abstained" from making further payments to Hailey until an independent investigation was conducted.
The judge appointed Geoff Carton-Kelly, a partner at FRP Advisory, a firm specializing in restructuring, as the new administrator.
In recent weeks, it became known that Hailey has reached an agreement with Carton-Kelly to give up some of Comets bailed assets. The owners of Comet will no longer be the priority creditors in the forthcoming sale of the assets. Carton Kelly declined to comment.
Trying to find more money for the creditors, Cardboard Kelly decided to get it from the former owner - the company Kesa Electricals, which is now called Fnac Darty. He sued the French retailer on the grounds that it had breached bankruptcy rules in 2011 when it seized £115m from the insolvent business after it was transferred to Hailey.
The argument in favour of the suit is that Kesa was ahead of the line of other creditors in the business, which was already insolvent.
Any payments under this lawsuit will be evenly distributed among Comet creditors, the largest of which is Hailey.