Is offshore the place to be?

Accountancy firms are looking far and wide for protection from lawsuits. Roger Trapp reports

T his week, KPMG, Britain's second-largest accountancy firm, has done what would have been unthinkable only a few years ago. It has published full financial results, revealing not just fee income but profits and the earnings of key partners.

Senior partner Colin Sharman and his colleagues have gone to some effort to paint this as a goodwill exercise that goes beyond the legal obligations stemming from its decision to make its audit arm a company within the UK organisation. But it is really a direct result of developments in the battle against negligence suits.

As the UK firm with the largest audit business, it was natural that KPMG should take a lead in finding a way out of the difficulties flowing from the application of the law of joint and several liability. The accountancy profession wants this law reformed because under it auditors - because of the perception that their insurance cover makes them a worthwhile target - can find themselves bearing the whole cost of a corporate collapse even if only partly to blame. But though the US has recently become the latest country to adopt proportional liability and a Law Commission feasibility study on the issue commissioned by the Department of Trade and Industry is shortly to be published, the big firms feel they cannot afford to wait for action. The court judgment late last year against Binder Hamlyn, which - because it had only partial insurance cover - could result in about 100 partners of the firm, now part of Arthur Andersen, being bankrupted, has provided just the evidence they needed that desperate times call for desperate measures.

Days after the judgment, Ernst & Young and Price Waterhouse announced that they were working with the States of Jersey to introduce a law that would allow them to set up in the offshore financial centre as limited liability partnerships. The idea, according to PW senior partner Ian Brindle, is to provide the firm with protection against the type of lawsuit that would wipe it out while not sacrificing the sorts of things that partnerships hold dear - most notably the collegiate structure that remains despite efforts to make the largest firms more businesslike.

Squaring this particular circle will be one of the central themes of a conference on incorporation of professional practices being held at London's Cafe Royal next Thursday by IBC UK Conferences in association with accountants Clark Whitehill and solicitors Allen & Overy.

The fact that Allen & Overy is taking a central role in the debate demonstrates that this issue is rapidly moving beyond the confines of accountancy. Solicitors' firms are increasingly worried about the rising tide of litigation, while the Binder judgment sounded warnings bells for professionals, such as consulting engineers and architects, involved in the traditionally litigious construction industry.

There is little doubt that coming changes in the tax regime make partnerships less attractive business entities than they were. But, as Allen & Overy partner Richard Turner, and David Furst and Chris Greene, of Clark Whitehill, will demonstrate at the conference, there are still many factors to be considered and a lot of complications to be dealt with if the move is to have the desired effect.

In particular, opinion is sharply divided over the effectiveness of KPMG's partial incorporation. Mr Sharman maintains that legal opinion given to the firm states that it can ring-fence its audit business in such a way, but others have their doubts. One prominent partner at another firm believes partial incorporation is just a first step - adopted to ease the financial or administrative burden of changing status - towards total incorporation.

Similarly, not every member of the accountancy profession feels that setting up as a limited liability partnership offshore is the way forward. The plan is inspired by a similar development in the US state of Delaware, where all the leading US firms are now registered. Delaware has long encouraged companies to be based there through having its own approach to certain areas of commercial law while still being part of the US. Jersey does not fall into that category and more than one firm has expressed reservations about "running away" in this way.

Proponents of the Jersey plan say they have been forced into it because UK legislation only allows partners to have limited liability if they take one part in the running of the business.

KPMG claims that leading clients and financial institutions are supportive of its move on the grounds that it will not only assist them in remaining in business but will also, as a result of the required financial disclosure, give them a better idea of its soundness. But the decision earlier this month by the mighty investment bank Goldman Sachs not to abandon its partnership status, when it had been widely expected to, demonstrates that incorporation is still a long way short of being a straightforward issue inside and outside the organisations concerned.

It is perhaps significant of the need to handle it carefully that the lunchtime session at the IBC conference will be taken by Dale Fishburn, chairman of Fishburn Hedges, the PR and design consultancy that has advised Price Waterhouse on matters arising from the firm's involvement in the matter that makes it most interested in audit liability - the collapse of BCCI.

Details of the Incorporation of Professional Practices conference, at which the author will be a speaker, from Sarah Mobsby at IBC UK Conferences, 0171-637 4383.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
Small winemakers say the restriction makes it hard to sell overseas
food + drink
Arts and Entertainment
A comedy show alumni who has gone on to be a big star, Jon Stewart
tvRival television sketch shows vie for influential alumni
Arts and Entertainment
Jerry Hall (Hand out press photograph provided by jackstanley@theambassadors.com)
theatre
Arts and Entertainment
Carrie Hope Fletcher
booksFirst video bloggers conquered YouTube. Now they want us to buy their books
PROMOTED VIDEO
News
Clare Balding
peopleClare Balding on how women's football is shaking up sport
Sport
Lewis Hamtilon and pole-sitter Nico Rosberg
SportShould F1's most aggressive driver curb his instincts in title decider?
Arts and Entertainment
Damien Hirst
artCoalition's anti-culture policy and cuts in local authority spending to blame, says academic
Sport
premier leagueMatch report: Arsenal 1 Man United 2
Arts and Entertainment
Kirk Cameron is begging his Facebook fans to give him positive reviews
film
News
i100
Sport
Jonny May scores for England
rugby unionEngland 28 Samoa 9: Wing scores twice to help England record their first win in six
Life and Style
fashionThe Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Arts and Entertainment
Jason goes on a special mission for the queen
tvReview: Everyone loves a CGI Cyclops and the BBC's Saturday night charmer is getting epic
Sport
Tony Bellew (left) and Nathan Cleverly clash at the Echo Arena in Liverpool
boxingLate surge sees Liverpudlian move into world title contention
Voices
Neil Findlay
voicesThe vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Life and Style
food + drinkMeat-free recipes and food scandals help one growing sector
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible
    Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

    Look what's mushrooming now!

    Meat-free recipes and food scandals help one growing sector
    Neil Findlay is more a pink shrimp than a red firebrand

    More a pink shrimp than a red firebrand

    The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
    Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

    Oeuf quake

    Bill Granger's cracking egg recipes
    Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

    Terry Venables column

    Wayne Rooney is roaring again and the world knows that England are back
    Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

    Abject leadership is allowing football’s age-old sores to fester

    Those at the top are allowing the same issues to go unchallenged, says Michael Calvin