The former chief executive of The Accident Group (TAG) has accused the company of using an accounting policy which wrongly inflated profits and boosted pay-outs to shareholders including the personal injury group's founder, Mark Langford.
Michael Watson, sacked by TAG on 23 May last year, claims he identified problems with the accounting policy which KPMG then investigated and advised the no-win, no-fee company to slash profits and increase liabilities.
Details of serious problems with the books of TAG, which went into administration on 30 May, are revealed in a lawsuit brought by TAG against Mr Watson in January this year, after sacking him for gross misconduct.
In his defence, Mr Watson alleges that he recommended a change in TAG's accounting system to move it away from a system of booking income from personal injury cases before the cases were formally taken on. Instead, Mr Watson claims he advised that TAG should only recognise profits from the cases in its accounts when the contracts on the cases were entered into.
"The change in accounting policy was not welcomed by Mr Langford, whose principal concern was to maximise the amounts available to shareholders,'' Mr Watson claims. Mr Langford and his wife Debbie own 25 per cent of Amulet, TAG's parent company. The rest is controlled by an offshore trust, Leverington, based in the British Virgin Islands.
Mr Watson, who was TAG's finance director before stepping into the chief executive's role, is counter-suing TAG and Amulet for unfair dismissal. The company claims Mr Watson, who was on a salary of £390,000 and last year received a bonus of £260,000, and whose company car was a Jaguar XK8, used the wrong figures for the number of cases TAG was taking on.
TAG also alleges its former executive did not make provisions for a "swing premium", which under certain circumstances meant the company had to repay money to insurers providing policies to cover the costs of personal injury cases it took on.
As a result, TAG claims, "the level of reported profits was significantly overstated". TAG maintains that Mr Langford first identified problems with TAG's accounts. KPMG was asked to investigate in January 2002 and said in March there were "serious discrepancies" in its balance sheet. As a result of the investigation, TAG saw a £8.3m profit wiped away, leaving it with a £400,000 loss as at 31 August 2001 andnet assets of £4m turned into liabilities of £4.4m.
The wrangle between Mr Watson and TAG has emerged after creditors last week called for TAG to be to put into liquidation. This would enable liquidators to pursue Mr Langford and other directors for damages if they find evidence they kept the company going when they knew it was about to collapse. Sources close to TAG said its directors believed the company, which was in distress from the beginning of the year, would be saved by a deal with the entrepreneur Hugh Osmond. Mr Osmond negotiated with TAG for eight months about the possibility of providing the crucial insurance policies that customers who signed up with TAG had to take out. He broke off talks after finding that TAG's rate of failed personal injury cases was in his view too high.
A spokesperson for TAG said: "To suggest Mr Watson instigated the review was incorrect. It was Mr Langford with Gordon Blair [appointed as finance director after Mr Watson]. Of course Mr Langford was irritated the accounts had to be restated because the finance director gets it wrong, it is only natural.''
- More about:
- Business Economics
- Financial Administration
- Management Accounting
- Stock And Equity Market And Stock Exchange