Publication of the report of the Disciplinary Tribunal following sanctions against KPMG LLP and a former partner in relation to Silentnight

News types: Investigations, Publications, Statements, Tribunals

Published: 13 October 2021

The FRC has today published the report of the Independent Disciplinary Tribunal detailing its findings of Misconduct by KPMG LLP (KPMG) and David Costley-Wood (former Head of KPMG Manchester Restructuring) together with sanctions, in relation to the Silentnight group of companies. The report has been edited for publication.

The FRC previously announced the Misconduct findings and sanctions on 5 August 2021 .

In deciding what sanctions to impose, the Tribunal have made important findings as to the behaviour expected by Members and Member Firms facing regulatory action by the FRC and their report details a number of serious failings by KPMG and Mr Costley-Wood in that regard.

Advancing an untruthful defence (report paragraphs 468 and 470)

For the first time, the Tribunal has held that a Respondent advanced an untruthful defence.

Mr Costley-Wood and KPMG claimed that that Silentnight faced a “burning platform” prior to the Debt Sale Agreement. The Tribunal held that:

the nature of the defence advanced by Mr Costley-Wood […] was untruthful in that he did not believe that there was a burning platform throughout the material period…


the defence put forward by Mr Costley-Wood in relation to the burning platform was a construct invented by him to assist in his defence ”.

Respondents are entitled to defend proceedings honestly, robustly if they wish, and the fact that a Tribunal ultimately disagrees with that defence is not of itself a matter of criticism. However, advancing a defence which a Respondent knows is untruthful seriously risks undermining the regulatory system, compounds the original failings and may be treated as an aggravating factor to sanctions.

Failure to co-operate with Executive Counsel’s investigation (report paragraphs 53.4.1, 473 to 475)

Pursuant to the FRC Accountancy Scheme, it is a requirement that Member Firms and Members cooperate with Executive Counsel’s investigation. Failure to do so may form the basis of an Adverse Finding, or be treated as an aggravating factor to sanctions.

The Tribunal’s Report identifies serious failures to cooperate with Executive Counsel’s investigation:

  1. KPMG failed to reveal to Executive Counsel material facts when required, such as the recording of £45,000 of time costs prior to their formal engagement and the ad hoc retainer with Silentnight commencing around 16 August 2010;
  1. Mr Costley-Wood created a note of a crucial meeting on 16 August 2010 some 13 months after the event, specifically in response to the Pensions Regulator’s investigation. However, neither Mr Costley-Wood nor KPMG drew to the attention of either the Pensions Regulator or the Executive Counsel that the note was produced over a year after the meeting in question;
  1. Notices to produce material are a standard part of any investigation. However, KPMG failed to conduct an electronic search of Mr Costley-Wood’s personal emails, despite two specific requests from Executive Counsel. KPMG instead relied on Mr Costley-Wood’s recollection of events over 9 years earlier. This failure meant Executive Counsel may have lost the opportunity to follow up lines of enquiry because in the intervening period, Mr Costley-Wood’s personal emails which had not been copied to the KPMG email server would have been deleted. The Tribunal held that:

“The failure to carry out comprehensive searches in response to the specific requests by the Executive Counsel is a serious matter as it does exhibit a failure to cooperate.”

Failure of Senior Management to respond to criticism (report paragraph 432)

The Pension Regulator’s First Warning Notice dated 11 December 2014 (a copy of which KPMG received) contained serious criticism of Mr Costley-Wood’s conduct in providing advice to HIG, in light of what tPR called an “ obvious conflict of interest ”. The Tribunal held that:

Such strong criticism from a public regulator should have prompted a thorough investigation of Mr Costley-Wood’s conduct and of KPMG’s systems, process and controls. There is no suggestion that KPMG took such steps.”

Having made these findings the Tribunal decided that in the particular circumstances of this case, the very substantial financial sanctions and a lengthy exclusion  imposed did not require  additional adjustment for aggravation. The financial sanctions of £13 million and £500,000 imposed on KPMG and Mr Costley-Wood respectively by the Tribunal in this case are the highest ever imposed on a Member Firm and Member in a non-audit case. This is despite the fact that the misconduct occurred during the relatively short period of 7 months.

Elizabeth Barrett, Executive Counsel, said:

KPMG and Mr Costley-Wood compounded their serious Misconduct by advancing a defence to proceedings which was partly untruthful and by failing to cooperate with the investigation. This ruling contains important learnings for Members and Member Firms, both in relation to the original Misconduct and in relation to the conduct expected once an investigation has been commenced.”