Many years ago I worked in Dublin for a trade publisher called Lafferty, which specialised in producing newsletters for the financial and professional services sectors for an international audience.
This included a stable of titles about the accounting profession, which involved a lot of stories about lawsuits against Big Six (now Big Four) auditors by creditors or shareholders in failed companies.
The narrative was usually along the same lines. A major company would collapse, an event that would involve enormous amounts of money being written off, staff being let go and shareholders being wiped out.
Once the initial shock of the collapse had worn off, creditors and shareholders would target auditors for compensation, with class-action lawsuits in the United States a favoured legal mechanism to pursue recompense.
The auditors would respond by saying the case against them was without merit and would be robustly defended.
They would also argue that, as auditors, they could never have spotted the fraud or incompetence by directors or owners that led to a company’s collapse. That simply wasn’t a function of a statutory audit.
Deep-pockets lawsuits
They would make the case that they were an easy target, given their professional indemnity insurance and the fact that, as partnerships, the partners were jointly and severally liable. These were deep-pockets lawsuits.
Nothing focuses the mind more than the thought that that you might lose your family home in a lawsuit. Invariably, the cases would be settled out of court, avoiding expensive legal bills and an airing of dirty laundry. A cheque would be handed over by the firm or their insurers and the settlements would be without any acknowledgement of liability. Everyone would move on. They are good at that in the United States.
The global financial crash in 2008 left a lot of blood on the floor from corporate failures. In Ireland, the banking and property sectors imploded spectacularly, resulting in taxpayers having to bail out the financial sector to the tune of €64 billion and the State setting up the National Asset Management Agency to take toxic property loans worth tens of billions of euro off the balance sheets of lenders.
Eleven years on and two major lawsuits involving auditors – IBRC's liquidators versus EY and Quinn Insurance's administrators versus PwC – remain to be resolved.
EY was auditor to Anglo Irish Bank, which has cost taxpayers about €30 billion to date. The legal action against the firm was delayed for several years by a number of criminal cases involving Anglo, which are now out of the way.
The case is currently at discovery stage and sources say it is likely to be 2021 before it gets to a court hearing. That would effectively be 15 years on from the events under scrutiny.
By contrast, EY in the US settled two major claims against it relating to its audits of Lehman Brothers within five years of its 2010 collapse. It was the collapse of Lehman that lit the fuse on the global financial crisis.
The Quinn Insurance case returned to the Court of Appeals yesterday to hear an appeal by PwC after it failed to get orders last year requiring the Quinn administrators to provide security for the auditor’s estimated €30 million in defence costs. That ruling may ultimately be appealed, potentially further delaying the substantive trial.
Quinn Insurance was placed into administration in 2010 and the administrators began their legal action against PwC in 2013, seeking about €900 million in damages for accumulated losses relating to the years for which PwC’s audits are in dispute.
The disclosure of material between both parties relating to the case has not yet begun, and the administrators require funds from the Minister for Finance to continue to pursue the action.
Levy
Almost a decade on from Quinn Insurance’s collapse, which will cost Irish consumers for years and years to come by way of a levy on their non-life insurance policies, the case remains live with no prospect of a settlement in sight.
The passage of time has undoubtedly dimmed memories and a lot of the main players in the Quinn Insurance debacle have aged considerably.
It should be said that both EY and PwC have defended their work as auditors to Anglo and Quinn Insurance respectively. And they are well within their rights to fight these cases tooth and nail through the courts in a bid to protect their reputations, and their wallets.
The slow pace of progress in the Irish justice systems has also played a part in these actions being dragged out for so long.
Both EY and PwC have been flying high these past few years, growing in line with the spectacular recovery in the Irish economy. Their revenues and employment levels are at record levels and they are both regarded as top corporate brands in the marketplace. And yet these cases continue to hang around like a bad smell.
PwC has a marketing slogan at present exhorting people to ‘Think Change, Think Beyond, Think PwC’. Yet it’s hard for many people to think beyond Quinn Insurance given how long the case has lasted.
