EY under fire over its two roles at battery start-up Britishvolt

[ad_1]

EY has come under fire over its switch from adviser to administrator of failed battery start-up Britishvolt as questions mount over a possible conflict of interest created by its twin roles.

The Big Four consultancy was a longstanding adviser to Britishvolt, playing a central role in devising its failed strategy, seconding a team to the company for almost two years, and collecting millions of pounds in fees.

Last month administrators from EY were ushered in to find a buyer for the business when it collapsed, igniting concerns over conflicts of interest in a sector MPs have branded a “wild west”.

EY’s move from adviser to administrator “must be a conflict of interest”, said one industry figure who was close to the Britishvolt process.

“You have to laugh,” said an EY insider of the firm’s dual duties.

Several Britishvolt employees also questioned the validity of EY’s twin responsibilities during a heated video call between staff and the administrators last month, according to two people.

It is not unusual for advisers to be subsequently appointed as administrators.

EY is processing four separate offers for the failed battery start-up © Jakub Porzycki/NurPhoto via Getty Images

While some insolvency specialists argue that administrators have an advantage if they know the business well, critics say such arrangements create a risk that advisory firms will in effect be marking their own homework, threatening their independence.

EY on Friday selected Recharge Industries as the preferred bidder for BV, having received four bids on Wednesday, according to two people briefed on the process.

The prospective deal with the Australian battery company was selected over offers from a group of current shareholders, the private equity group Greybull Capital, and the Saudi British Bank, the people said.

EY’s administrators’ fees will be paid in priority to amounts owed to Britishvolt’s creditors, as is normal in an insolvency.

Since the firm was appointed as administrator, new details have come to light that expose the closeness of the existing relationship between the companies.

Before the company’s collapse, Britishvolt paid EY £500,000 a month, according to two people. During some months, the start-up spent more money paying consultants, which included EY, than it did its own staff, one of the people said.

EY was involved from a very early stage, and was instrumental in helping Britishvolt position itself as a functioning enterprise, according to multiple people who worked with or for the start-up.

“They wrote the whole business plan from scratch, they did everything,” said a person who had close involvement at the time.

EY’s ties to the battery start-up became even closer when Britishvolt’s chief financial officer, its head of finance systems and innovation, and the chief of staff to its chief executive were all hired from the consultancy in 2021.

In addition, EY used its relationship with the start-up to boost its corporate sustainability credentials, despite its global boss criss-crossing the world in a private jet dubbed “EY One”. The project was one of a select few the firm highlighted as it reported its annual global revenues in September.

The Britishvolt project was also a chance for EY to demonstrate its connections with the UK government. Its team advising the start-up included Mats Persson, a former chief of staff to Sajid Javid during his spell as UK chancellor, and special adviser to David Cameron when he was prime minister.

Ministers offered Britishvolt a support package worth £100mn if the company raised private funding and began construction work. In the end, Britishvolt hit neither target, and the money was never paid out.

EY declined to answer whether Persson was involved in lobbying for Britishvolt as it sought taxpayer funding.

In response to a detailed list of questions about Britishvolt, EY said it “was an unsecured creditor of the company at the time of the appointment of administrators [because of fees owed to it for its earlier advice], but will not vote on any creditor resolutions that may be required as part of the administration process”.

It added that “creditors of Britishvolt and monies owed will be disclosed in due course as part of the administrators report”, and declined to comment further.

Although EY has not been accused of breaking any rules, questions over its role come at a sensitive time for the sector, as the government considers overhauling the way the insolvency profession is regulated.

The sector has also faced a backlash after high-profile fines against Deloitte in 2020 and KPMG in 2022 over misconduct by their insolvency teams.

In a public consultation on oversight of the sector, which closed in March, the government said the scandals had “contributed to a perception of a lack of objectivity and integrity generally by insolvency practitioners”. This “is almost as damaging to the reputation of the insolvency profession as a lack of objectivity and integrity itself”.

The government’s proposed changes include replacing self-regulation by professional bodies, which detractors say is insufficiently robust, with a statutory regulator.

A  bird’s-eye view of the site for Britishvolt’s planned gigafactory
A bird’s-eye view of the site for Britishvolt’s planned gigafactory © Owen Humphreys/PA

Unlike other professions such as auditors and lawyers, insolvency practitioners are also regulated as individuals rather than at firm level.

Government proposals for the sector include replacing its current system with one where firms employing insolvency experts are directly accountable for their conduct and the management of conflicts of interests.

The government has yet to publish its response to submissions made during the consultation.

“I would hope that the government’s report would at least in part address the problem of perceived or potential conflicts of interest by moving towards the regulation of firms rather than individual practitioners,” said David Ereira, partner at law firm Paul Hastings, and former chair of the government’s Insolvency Service.

“But until the government publishes its response, we just don’t know.”

This post is originally appeared on FT

[ad_2]

Leave a Reply