Deloitte puts UK restructuring firm up for sale

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Deloitte has put its UK restructuring practice up for sale following concerns from senior executives that it has become too difficult to manage conflicts of interest, said two people familiar with the decision.

The “Big Four” accounting firm plans to approach potential buyers, including rival professional services groups and private equity firms, the sources said. The divestiture could also take the form of a management buyout.

The plans highlight the pressure on Deloitte and its bigger rivals PwC, EY and KPMG to deal with conflicts of interest after corporate failures and accounting scandals called into question the quality of their audits and the independence of their advice.

Last year, the Financial Reporting Council, which oversees the audit profession, introduced a “radical” update to its ethical standards for audit firms. It tightened the rules on the services the industry could provide to listed companies and financial institutions to strengthen auditor independence.

“It is becoming increasingly difficult for firms to accept new non-audit contracts as a result of new ethical standards,” said a person close to Deloitte. “There is a feeling that even if Deloitte Australia or Singapore takes on a new client, it could lead to audit independence issues in the UK.”

Deloitte declined to comment.

Earlier this year, Deloitte was penalized for lacking independence in its work on the insolvency of UK electronics retailer Comet. The Institute of Chartered Accountants in England and Wales fined the UK company £ 1million for failing to ensure it was objective in its role as a director of the collapsed company.

Deloitte’s attempt to sell its restructuring practice comes as the FRC ordered the Big Four to financially close their audit divisions in
2024, in order to eliminate the risk of conflict and improve
transparency of audit benefits and remuneration.

In response to this environment, KPMG sold its retirement advisory business in March for more than £ 200 million. The company has also had talks in recent years about a potential sale of its restructuring practice and in 2018 rejected an attempt to take over the division by private equity firm Permira.

A sale of Deloitte’s restructuring practice could net hundreds of millions of pounds at a time when the company’s overall revenues suffered from an expense impact during the coronavirus crisis. Each of the
the big four companies cut monthly profit payments to partners
in order to preserve liquidity since the outbreak of the pandemic.

Deloitte’s restructuring unit employs around 350 people and 20
the partners. It benefited from a resumption of restructuring work and
corporate insolvencies among businesses affected by the economic fallout from the coronavirus and government-imposed lockdowns. The company has been appointed director of UK retailers Oasis and Warehouse.

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