BDO: ‘Pay us or we’ll hang around’

Posted on September 17, 2012


Reports have reached us in the USA that the elusive Danny Dartnaill began his presentation to a meeting investors in the Series 1 Fund on Wednesday September 12 with the observation that he understood that some of those who have lost money in the Fund are frail or elderly people relying on distributions from the Fund to pay nursing home fees. Some investors have told us that they detected a hint of empathy, or even shame from the man who led the team that we now suspect did not take steps to alert investors (via the police or the FSA) to the alleged fraud that was taking place in Tiuta in early 2011, despite ample evidence of its existence.

We understand that an overwhelming majority of investors voted against Danny Dartnaill and his colleague Malcolm Cohen continuing as administrators of Tiuta International Limited. This is the insolvent company which holds many assets charged in favor of the Fund. The BDO duo’s initial response to the overwhelming vote of no confidence was to dig in their heels and threaten to hang in there for another 8-10 weeks before handing over to new appointees. Unless, that is, investors made it worth their while financially…
It is common practice when insolvency practitioners are removed under a cloud by creditors that their fees are heavily discounted. Typically in such situations, they can expect to be paid somewhere between half and three quarters of their billable hours. But we think this is not a typical case. In our view, the Code of Conduct for insolvency practitioners (http://www.insolvency-practitioners.org.uk/uploads/Technical/Ethics%20Code%20Final%20-%20IPA.pdf?),
restricts IPs’ ability to be appointed over companies where there is a material conflict. In this case, the conflicts arise because Dartnaill and Cohen led the team that had been advising Tiuta’s management, Connaught and the FSA about the group’s finances almost continuously between January 2011 and May 2012. In our view, the conflicts meant that they should not have accepted the roles as joint administrators of Tiuta International Limited.  Under those circumstances, we query BDO’s right to collect fees for an appointment its partners should never have accepted.

The rumor mill is saying that Dartnaill and Cohen demanded 90 percent of their bill is paid, and said that if they didn’t get it, they would force the Fund to go to Court to remove them, which would have enabled them to remain in situ and continue to earn their lavish fees for another 8-10 weeks. But if the Fund paid up, they could be gone in two to three weeks. So much for the crocodile tears about cash-strapped nursing home residents…

 

We hear a deal was brokered on Sunday under which BDO waived 25 per cent of its fees to date in return for a commitment to pay their bills in full for a further three weeks, representing an estimated overall discount of 21 per cent. But at least they have undertaken to go, so the process of getting Tiuta plc and its subsidiaries into liquidation, accessing bank statements and progressing the various non-loan book claims – including that against BDO – can begin soon. It is now a reasonable expectation that BDO will not stand in the way of new lawyers being instructed to pursue the bank statements as part of
an orderly hand-over, etc.

We suspect that BDO did not report to the FSA that the Fund was being defrauded and had become a ponzi scheme. The impending liquidation of Tiuta plc may throw up vital evidence one way or another.

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