BIG four accountancy firm Ernst & Young has claimed that troubled insurer Equitable Life is pouring money down the drain by pursuing a High Court action which is due to begin later today.
Equitable is seeking pounds-2bn damages from its former auditor, claiming it was negligent in the late 1990s when the insurer made promises to policyholders it was unable to meet, leaving it with a huge compensation bill.
The claim, which is also against former directors, is the largest yet to be brought against an auditor in the UK and sets a precedent by targeting nonexecutive directors as well as their executive counterparts.
During the build-up to the start of court proceedings, both Equitable and Ernst have engaged in a phoney war, with each predicting victory. They have also warned the case could cost them pounds-30m or more each, while the reputations of some of the City's biggest hitters are also at stake.
Equitable claims its auditors and directors should have highlighted its vulnerability from so-called guaranteed annuity rates sooner. While claiming it has a very strong case, Equitable has refused to rule out a settlement, simply saying that any offer would have to be "serious and substantial".
In 2000, the insurer closed its life fund to new business after the House of Lords, the UK's highest court, ordered it to honour guarantees on policies sold during the 1970s and 1980s.
The move pushed Equitable to the brink of bankruptcy as it tried to recoup pounds-1.5bn by halting terminal bonuses and shunning new policyholders.
Besides the case against Ernst, Equitable is suing 15 of its former directors for up to pounds-1.7bn in a trial expected to last for up to nine months. The proceedings could cost more than pounds-80m, and involve at least 10 law firms and 12 expert witnesses.
Nick Land, chairman of Ernst, said: "Today sees the beginning of a case that should never have been brought. Nothing that Ernst & Young did caused Equitable's problems. There is nothing we could have told them that they did not already know. There was no black hole, no fraud and no money lost."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article