Court asked why liquidators are not suing KPMG over INBS collapse

Terence J Cooney today secured an order joining KPMG as a third party to the case

Liquidator Kieran Wallace of KPMG. Photograph: Brenda Fitzsimon

Liquidator Kieran Wallace of KPMG. Photograph: Brenda Fitzsimon


A former director of Irish Nationwide Building Society has told the Minister for Finance it is “preposterous” that the two special liquidators of State-owned IBRC, who are both partners in accountancy firm KPMG, are suing him over billions of losses at the society but are not suing their own firm for alleged negligence.

As the special liquidators, Kieran Wallace and Eamon Richardson, “have clearly decided to relieve their own firm of any responsibility”, Mr Noonan should direct them to bring a claim against KPMG on behalf of the State-owned bank, solicitors for Terence J Cooney stated in their letter to the Minister, the Commercial Court heard.

If the legal action was “a serious attempt” to recover money for the taxpayer, it was “ridiculous” for it to be taken against a director with no possibility of satisfying any judgment in the hundreds of millions or billions claimed when the “culpable” auditors, a multi-national firm presumably with insurance, clearly do, the letter added.

The fact KPMG is not being sued showed the action was “a public relations exercise”.

Mr Cooney today secured an order from Mr Justice Peter Kelly joining KPMG as a third party to the case brought against him and other non-executive directors for the purpose of claiming an indemnity against the accountancy firm for any damages awarded against Mr Cooney.

His counsel Denis McDonald SC sought the order in circumstances where Mr Noonan has yet to respond to the January 31st letter from Mr Cooney’s lawyers alleging the special liquidators have “a glaring conflict of interest” in relation to the litigation.

The only reasons the auditors are not being pursed is because both the special liquidators and auditors are KPMG, the letter alleged. In another case, the IBRC special liquidators are suing another accountancy firm, Ernst & Young, over its auditing of IBRC, the letter added.

Under the IBRC Act, Mr Noonan is entitled to direct the special liquidators to pursue KPMG and it is “manifest” such a direction was advisable, the letter added. It was for the Minister to decide whether the State was waiving a claim against the auditors of the Society.

Maurice Collins SC, for IBRC, confirmed his side do not intended to join KPMG to the case as a defendant but denied the proceedings are a public relations exercise. This case was initiated prior to the February 2013 special liquidation of IBRC and was brought against the directors on foot of advice, counsel said.

Mr Justice Kelly ruled Mr Cooney had met, “with ease”, the low threshold necessary for joining a third party and granted his application to join KPMG as a third party.

Mr Cooney’s claims against KPMG will be dealt with at the end of the hearing of the proceedings brought by IBRC, who took over INBS’ loans, against him and three other former non-executive directors - John S. Purcell, David Brophy and Michael P. Walsh - over losses of some €6billion at the Society between 2008 and 2010. Former INBS CEO Michael Fingleton is being separately sued.

A key issue in both cases is an alleged excessive and unlawful delegation from 1981 of the powers of the INBS board to Mr Fingleton. The directors, without prejudice to their denial of the claims against them, allege the Central Bank, Financial Regulator and KPMG were all aware of the alleged delegation and took no steps to have that revoked. They also allege they were in a very different position from Mr Fingleton.

The losses mainly arose from development loans made while Mr Fingleton was chief executive, the special liquidators claim. Had the true picture of INBS’ affairs been disclosed, Mr Fingleton would have been summarily dismissed for breach of duty by 2007 at the latest and not paid expenses inappropriately incurred, plus €1.2m performance bonuses for 2008 and 2009, they allege.

In seeking to join KPMG, Mr Cooney, an accountant, claims his experience was in taxation rather than banking matters and he at all times relied on the advice of KPMG in performing his role as a non-executive director between 2001 and 2007.

While it was alleged the board should have dismissed Mr Fingleton as of December 1st 2007, KPMG, as auditors, had in November 2008 stated that, given the “exceptional market circumstances”, Mr Fingleton should be a member of the Board although that would require an amendment to the Society’s rules, he claims.

Although it was now claimed the board had allowed a “highly unusual” management structure at the INBS, KPMG had carried out audit reports, corporate governance reviews and review of the internal audit function without ever mentioning a “highly unusual” management structure or inappropriate lending procedures, it is claimed.