Type of project
English High Court professional negligence claim valued at GBP 1.3b brought by the Official Receiver of Carillion assisted by the OR’s Special Managers, PwC, against Carillion’s former auditors, KPMG, for allegedly failing to identify material accounting irregularities (mainly in respect of construction contract revenue and the value of goodwill) in its audits of the financial statements of Carillion over period December 2014 to December 2016.
The basis of the claim was that these audits failed to identify the irregularities, and so Carillion continued to pay dividends, to trade (including continuing to fulfil existing long-term construction contracts and entering new contracts) and continued to borrow. These actions led to avoidable losses and ultimately the financial collapse of Carillion.
Funding of the claim was originated as a result of deep networks between LCM and the insolvency practitioners at PwC. The opportunity was competitive among commercial funders and hedge funds. LCM was selected on the basis of its competitive pricing, stable sources of capital and, so far as feedback goes, measured and disciplined underwriting.
Independent assessment by UK counsel of the extent of auditor negligence, causation and loss. The due diligence process took c. 9 months (being c. three times LCM’s usual time) due mainly to changes in the course of development of the claim for which assessment was required in order for LCM to meet its rigorous underwriting requirements.
Capital committed was for (i) ATE insurance upfront premium, (ii) (discounted) Official Receiver’s Special Managers’ (PwC) and Quinn Emmanuel’s fees, and (iii) counsel’s and experts’ fees. LCM agreed that its funding would commence once the relevant available capital in the estate had been exhausted. Value of capital committed and deployed is confidential.
Capital reimbursed plus a rising multiple of deployed capital, capped at agreed percentages of recoveries if recovery was achieved at certain time-based milestones. Pricing of capital is confidential. Standard waterfall.
Time to completion
Completed (following a confidential settlement between the Official Receiver and KPMG) in Q1 2023 after 23 months following the date of the Litigation Funding Agreement.
LCM active project management
- Case project-management assistance to relieve workload pressure on Special Managers;
- Litigation strategy recommendations;
- Budget monitoring to ensure discipline and achieve an enhanced financial outcome for the estate.