Accountancy giant Grant Thornton has instructed Clyde & Co to defend a £38m auditor’s negligence claim brought by fire rescue equipment business AssetCo.
The claimant alleges Grant Thornton breached its duties and was negligent in its planning and conduct of a company-wide audit in 2009 and 2010.
AssetCo, which owns London’s fleet of fire engines, had to significantly delay and then restate its annual financial results in 2012 because of a “significant overstatement of profits and assets”.
The delay resulted in a temporary suspension of trading. AssetCo was then forced to sell its UK business for just £2 in 2012 after more than £235m was wiped from its balance sheet, prompting a shareholder backlash over the losses.
Grant Thornton subsequently resigned as auditors in 2011 to be replaced by PricewaterhouseCoopers, while AssetCo’s board of directors also stepped down as a condition of its refinancing agreements.
The Financial Reporting Council later announced a probe into Grant Thornton’s audit of the accounts in 2014, which is ongoing.
AssetCo has instructed Davis & Co partner Mark Davis to lead the claim, with Davis turning to Brick Court Chambers’ Michael Swainston QC and Richard Blakeley.
Plans to bring a claim were first floated by AssetCo chief executive Tudor Davies in 2014, but kicked off in earnest late last year with the claim filed in December.
Clyde & Co partner James Roberts and of counsel Andrew Forsyth are leading Grant Thornton’s defence, instructing 7KBW’s Christopher Butcher QC and One Essex Court’s Simon Colton. The defence was filed at the High Court earlier this month.
The claim filing alleges Grant Thornton “failed to apply an attitude of professional scepticism to information provided by management including by being alive to the possibility of management dishonesty and fraud”.
It alleges Grant Thornton missed a series of “risk factors” and “trigger factors”, including potentially dishonest payments made by its former boss, John Shannon, and former finance chief, Frank Flynn, who are not party to the claim.
In a statement Grant Thornton said: “As a large professional services firm, there may be occasions when we become involved in complex legal claims. We are not in a position to comment on such litigation.”
Grant Thornton is also in the midst of a major High Court battle brought by businessman Vincent Tchenguiz, who is claiming £2.2bn over allegations the auditor conspired to instigate a failed investigation by the Serious Fraud Office. Grant Thornton is represented by Simmons & Simmons in the case.
The legal line-up:
For the claimant, AssetCo
Brick Court Chambers’ Michael Swainston QC and Richard Blakeley, instructed by David & Co partner Mark Davis
For the defendant, Grant Thornton
7KBW’s Christopher Butcher QC and One Essex Court’s Simon Colton, instructed by Clyde & Co partner James Roberts and of counsel Andrew Forsyth