Andersens faces £110m damages bill following De Lorean action

Arthur Andersen is trying to overturn a US court ruling over the De Lorean bankruptcy that has landed it with a damages bill of about $110m.

Andersens was last month ordered by a New York court to pay $46m damages to creditors, for breach of contract and negligent audit of the De Lorean Motor Company, which collapsed in 1981 owing millions.

This could amount to $110m, when interest at 9 per cent back-dated to 1979 is added on.

Last November, Andersens, advised by Herbert Smith, paid the UK Government £18m in settlement of an action against it for conspiracy and negligence. The Government had invested £77m in the company.

However, it refused to settle claims of negligence and breach of contract lodged against it in New York courts by the US-appointed “trustee to the bankruptcy” (the US equivalent of a liquidator).

It is understood Andersens, advised by US firm Brown & Wood, believed it would easily win a court case. But Andersens practice director Ian Plaistowe said: “The trustee was not willing to participate in discussions we had with the British Government that led to the settlement.”

Manches & Co partner Charles Gordon, who acts for major De Lorean creditor Renault and who brought in the liquidators when De Lorean collapsed in 1981, said: “They [Andersens] basically told us to get lost. We called their bluff, went to court and won.”

The US trustee effectively represents De Lorean's private sector creditors, including Renault, which lost £12m in the collapse.

Plaistowe said: “It was a ridiculous verdict. We did an excellent audit. When you ask people what we could have done that we didn't do, they don't have any answers.”

Herbert Smith partner Richard Fleck, who acted for Andersens in the British Government case, and played a small part helping Andersens' US lawyers Brown & Wood in this case, said that Andersens had filed “a number of post-trial motions challenging a range of things from the judge's ruling to the way the jury understood the case”.

Manches' Gordon, who helped Chadbourne & Parke prepare the trustee's case for the New York court, said the case established a precedent in the US courts for the idea of “deepening insolvency”, a concept imported from UK courts by which an accountancy firm can be held liable for money a company has lost after it has carried out an inaccurate audit.

He said he expected Andersens to settle eventually.