Corporate Risk: What Are The Potential Claims Against Finance Professionals?

In this Opinion piece, Fleur Rochester, Vice-President of London FOIL and Partner at Kennedys takes a look at claims against finance professionals: a recap of the year so far and our predictions for the rest of 2023. It’s looking like a tough year for many companies and so Directors, Finance Officers, accountants, ESG policymakers and other contracted professionals, all need to be mindful of the risks when things go wrong.

In a difficult economic climate, we are seeing an increasing number of claims against:

· Auditors of businesses which fail;

· Accountants advising on tax mitigation and M&As/sales/purchases;

· IFAs and accountants advising on pensions;

· Insolvency Practitioners and others involved in advice on administration/liquidation; and

· Those professionals who help clients with ESG reporting or who audit businesses required to make climate disclosures


As the Financial Reporting Council (FRC) prepares to transition to become the Audit, Reporting and Governance Authority in 2024, its 2023/24 areas for supervisory focus include:

· Paying special attention to going concern, fraud risks, climate-related risks and risk identification and assessment when performing audit quality inspections

· Prioritising the review of corporate reports and audits of those businesses operating in sectors which are under particular commercial or financial pressure (travel, hospitality and leisure, retail and personal goods, construction and materials and industrial transportation)

It is clear that those undertaking audits of distressed businesses will continue to face FRC scrutiny and that, in the current economic climate, the number of businesses under pressure is increasing exponentially. Pandemic-related frauds have given rise to numerous claims against auditors who have allegedly lacked oversight and control. Those operating in this area must exercise a generous level of professional scepticism.


Professional indemnity claims arising out of advice on tax relief continue to develop. Whilst we are still seeing claims concerning advice on EIS schemes and Entrepreneurs’ Relief, insurers have seen a wave of notifications emanating from the ongoing changes to the Research & Development (R&D) tax relief scheme.

The Scheme supports SMEs and large companies which work on innovative projects in science and technology. Following a consultation in January 2023, HMRC has made changes to the scope, process and qualifying costs in line with the Government’s overall plans for tax simplification and its commitment to driving out abuses of the system.

2023 has seen a significant increase in the number of claims for relief being challenged by HMRC – Markel estimates that HMRC investigations into R&D claims will have increased by 900% between 2019 and 2023 as HMRC commits to “tackling error and fraud” with an estimated value in the 2021 financial year of £469M. Professionals involved in the provision of advice concerning what qualifies as R&D will become involved in investigations and possible claims. Insurers will no doubt be interested in assessing their

insureds’ potential exposure to PI claims where applications for relief do not bear scrutiny.


The FCA has taken an increasingly tough line on the pensions market since the British Steel pension scheme transfer scandal, which arose when, based on financial advice, 7,700 members transferred their final salary-style pensions, worth £2.8bn in total, into much riskier arrangements. The £49M redress scheme commenced on 28 February 2023 and includes a calculator aimed at putting members back in the position they would have been at retirement, had they stayed in the scheme.

Insurers have experienced a strong uptick in notifications concerning the scheme and are grappling with policy issues, including aggregation.

On 5 June 2023, the FCA reported that three firms had made unsolicited offers to clients that had yet to complain: “We are seriously concerned that these unsolicited settlement offers were not calculated in line with our guidance, and were a deliberate attempt to exclude former [British Steel Pension Scheme] members from the redress scheme”. PI insurers will be concerned to avoid their insureds seeking to sidestep the redress scheme, the legal challenge of the FCA’s method for calculating redress having been withdrawn in April 2023.

On 26 June 2023, the FCA announced it had concluded its investigation into 30 advisers involved in advising pension transfers in relation to the British Steel scheme and is now considering sanctions, which may include bans and supervisory notices, as well as fines.

In the wake of the British Steel pension scheme scandal, in January 2023, the regulator announced a sweeping review of pensions advice that will overlap with the launch of the new consumer protection rules. The FCA will publish a report setting out its findings in Q4 2023.

By April 2023, the aggregate surplus of the UK’s defined benefit pension market was £378.6bn (compared to a £128.5bn deficit in April 2020). Companies are looking to the bulk annuity market to guarantee the benefits promised to members through insurance, offloading their defined benefit pension liabilities (and the assets backing them) to insurers in exchange for a one-off premium. Claims may arise against those finance professionals advising on:

· The accounting impact of pension risk transfers;

· The impact of interest rate changes;

· The market value of assets versus exit liability;

· Transfer and valuation of assets; and

· Exit funding.

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In 2022, The Gazette recorded 22,109 company insolvencies (57% more than in 2021). The first quarter of 2023 alone has seen 5,747 company insolvencies. 4% less than for Q4 2022, but 18% more than for Q1 2022. Increasing costs and a shrinking economy mean that many businesses are under financial and commercial pressure (particularly, as mentioned above, those operating in the travel, hospitality and leisure, retail and personal goods, construction and materials and industrial transportation sectors.)

Increasing numbers of insolvencies will, inevitably, lead to PI claims against insolvency practitioners, especially in a market where the value of assets is falling. We can expect to see more claims against those acting as administrators or liquidators alleging sales of assets at an undervalue, although recent decisions in this area suggest that those claims are difficult to prove:

· In the One Blackfriars Limited litigation, it was alleged (unsuccessfully) that, had the former administrators of a developer discharged their duties, they would have raised funding (c.£350-£400M) which would have enabled them to have developed the site in the same way as the purchaser, who purchased the site for £77M, went on to develop the site. The loss claimed was £250M.

· In 2022, the administrators of two companies involved in the sale and development of two properties (Nos 38 and 40 Avenue Road) successfully defended a claim that they sold the properties at an undervalue when they sold them for £61.25M despite the properties having been valued at more than £100M pre-administration.


The Pensions Regulator carried out a review of occupational pension schemes in March 2023 and found climate disclosures to be lacking in detail or difficult to interpret; some schemes had missed mandatory disclosures altogether. The watchdog has warned pension providers and their advisers that it will consider enforcement action for similar inadequate disclosures at the next review.

Against this backdrop, it is inevitable that PI claims will follow in relation to:

· Alleged failures to provide strategic advice that accounts for climate risk and workplace culture;

· Auditors’ alleged failure to identify that ESG risks are not fully reflected within annual reports/financial statements (i.e. failure to identify a material misstatement – International Standard on Auditing 720); and

· Erroneous advice given by financial advisers in relation to a company or fund’s ESG credentials (“greenwashing”).

To conclude

Claims against finance professionals will continue and, in an increasingly difficult socio-economic climate, are evolving. The impact to insurers of increased regulation and scrutiny can be seen in the type of notifications received in the first half of 2023, a trend which shows no sign of slowing.

About alastair walker 12560 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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