I wish to propose the motion that

“the Joint Provisional Liquidators and Joint Deemed Official Receivers make an application to Court to appoint Malcolm Cohen of BDO Stoy Hayward of Baker Street London W1 as an additional Joint Liquidator”

In doing so I seek not to replace PWC but to bring in someone who would deal only with specific matters, namely where PWC may face a conflict of interest and to consider the question of claims that the Company in liquidation may have against the Government regulators here and in the UK; the directors and the Isle of Man Government. I do not seek here to prescribe what matters they should deal with because all we seek to propose is that Mr Cohen be appointed. It will then be up to the Committee of Inspection to determine what tasks the Liquidators should undertake and their respective split of duties.

Why do I propose this?

First PWC is one of the largest firms of accountants in the World. They are for that reason alone bound to come into situations in which they will have a real or perceived conflict. At any time they may be working for the Isle of Man or UK authorities, the FSC or FSA (we note, for instance, that they have recently been appointed by the FSA as UK administrator to Keydata Investments, an originator of structured investment products) or for a company or otherwise with whom the Bank has a dispute. They will establish Chinese walls which it may be said will avoid conflict but our concern is to allow the Committee of Inspection the flexibility to avoid the perceived conflict, to give it the ability to say to PWC that we’d prefer in this instance to use BDO.

In relation to costs of the Scheme of Arrangement which have topped £2 m our view is that PWC have some responsibility for not recovering those from the Treasury as a I describe in a minute. We would certainly want an investigation into their conduct in that respect and we do not see how in any way that PWC can conduct that investigation using other counsel or otherwise. It is in any event just not sensible. Creditors are entitled to expect that someone wholly independent looks at that and pursues it on behalf of the company if appropriate.

Second the depositors feel very strongly that there has been a regulatory failure by the FSC and perhaps the FSA and we have called for a public enquiry. At the moment it seems that the FSC blames the FSA; the FSA blames the FSC and they all blame the directors and the Icelandic parent. It’s like cats fighting in a bag. We have serious concerns about the commitment of the liquidators to get our money back by the pursuit of the wrongdoers here in the Island and elsewhere. This may undoubtedly lead to embarrassment for the authorities but creditors want all these avenues pursued vigorously and there is the perception that PWC will not do so.

Finally it will be no surprise to anyone that we have had concerns about PWC and with respect to them the perception we have is that they have on occasion not performed to their best. There was the occasion just a few weeks ago in this hall when the vote was taken on the Scheme of Arrangement when they had to restate the balance sheet with a reduction in assets of £128 m just days before the vote; and when they took the vote they had miscounted the votes by some £270 m. More recently just today we were promised the circulation of the statement of affairs and a report to creditors before the meeting but they have failed to do what they said they would do. Quite honestly we should expect better from PWC. Finally our view has been throughout that PWC should have secured cover from the I o M treasury for the costs of the Scheme of Arrangement which failed. That cover should have been arranged beforehand; the whole thing was an exercise undertaken at the behest of the Treasury. Recently the judge here in Douglas acknowledged that the Treasury were the proponents and financiers of the Scheme. He also agreed that the Company had been neutral and guarded but it’s the creditors who have had to pay for it. What PWC should have said to the Treasury was that if you want a Scheme then you pay for it. The judge was also surprised that the Company had not made an application for costs. It was left to the Action Group to do so. Had the Company done so not only may the court have ordered that the action group’s costs be paid by the Treasury but also the Company’s.

You may quite rightly ask will not another liquidator just add to the costs. The answer is NO. If we thought it would we would not seek the appointment. The cost process is under the control of the Committee of Inspection. The additional liquidator will be dealing with discrete tasks only which would need to be dealt with in any event. Those tasks can be costed and agreed by the Committee. Finally BDO charge out rates are lower than those of PWC and money will be saved.

Why BDO? Malcolm Cohen is a well known and widely respected insolvency practitioner based at BDO Stoy Hayward in London. He has been specialising in business restructuring for the past 27 years. He has provided us with his CV which demonstrates, in our opinion, that he has the skills, expertise and experience to carry out the role of Joint Liquidator with PwC. Recent cases on which he has been instructed include the administration of a licensed deposit taker in the UK with 3,000 depositors, acting as liquidator of a number of Cayman Island and Geneva based hedge funds, and an entity in the UK Lehman group. He has also successfully run assignments which have involved pursuing litigation against EU governments and the Big 4 accountancy firms. BDO is the world’s fifth largest international firm of accountants with over 30,000 partners and staff worldwide. Recent assignments undertaken by BDO include the receivership of the Dawnay, Day group of companies, acting as investigating accountant into the collapse of MG Rover and as independent valuer to Northern Rock – it therefore has the resource and expertise to deal with high profile assignments such as this one.

We have made the proposal for a joint appointment over the past couple of weeks and PWC’s reaction has been to say that they will not act with anyone else. With respect this is ridiculous and seems to be holding a gun to the head of the creditors. If you will not play with us we’ll take our ball home.

Our view is that all we are doing is offering a sensible and flexible solution to the problem. There is nothing unusual about it. Joint appointments happen all the time. We think the liquidation will be improved by it, it will save costs and for the future it gives the Committee of Inspection a choice which it will not otherwise have.



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