CA ANZ issues member with censure following conflict of interest concerns

In early 2022, the business partner left the company. The complainant claimed that the member continued to act for both parties, and suggested the complainant buy out his business partners’ shares in the firm and its related trust.

He alleged that Member H, who prepared the financials for this transaction, failed to advise him correctly on the financial position of the company and provided “substantially more favourable advice” to his business partner.

Member H said he had verbally told the complainant and his business partner to obtain independent legal and accounting advice, but did not do this in writing. The complainant refuted this.

“The Complainant denied being advised to seek independent accounting advice and was adamant that he would not have entered into the share sale agreement had he known the true state of the business,” PCC documents read.

Furthermore, while Member H had issued an engagement letter addressed to the complainant and his business partner when he was first engaged in July 2020, the PCC found that he had failed to issue an updated letter as the scope of his work changed.

“In the PCC’s view, the Member had a conflict of interest and it was appropriate that he apply safeguards to reduce the threat to objectivity to an acceptable level by seeking explicit consent to act in writing,” PCC documents read.

While Member H said that written consent was not needed because the parties “got along so well” and he was acting “straight down the middle,” the PCC said this view didn’t take into account critical risks.

These included the potential for relationships to deteriorate, the fact that conflicts of interest could occur even when parties were getting on well, and that the member played a critical role in determining the sale price whilst representing both the buyer and seller in the transaction.

“The Member’s failure to address the threat to objectivity means that trust has been compromised,” PCC documents read.

“In circumstances where the Member did not feel that he could include all parties in the communications, the PCC is of the view that he needed to consider whether he should withdraw from the engagement.”

The committee added that Member H should have issued a new engagement letter once the circumstances changed, as the original letter did not cover the new scope of work. This would have also served to document both parties’ consent to the new arrangement in writing.

The PCC considered that the complaint had been serious enough to refer to the disciplinary tribunal, but instead proposed a consent order agreement to be made with the member, to be entered on their record.

Under the agreement, Member H received a censure and was required to complete a CA ANZ short course on conflicts of interest. He was also subject to a quality review, and ordered to pay $3,706 to cover CA ANZ’s costs of the proceedings. ASIC and the TPB were also notified of the PCC’s decision.