Sarah Perrin, Accountancy Age, Friday 1 October 2010 at 13:15:00

St Christopher's Fellowship pursues firm over due diligence

Children?s charity St Christopher?s Fellowship is headed for a High Courtshowdown with chartered accountants MacIntyre Hudson.

In a claim form lodged at the High Court, the charity accuses the firm ofleaving it open to a possible £1.3m claim as a result of bad advice and isseeking damages.

The charity, which provides housing for children, young people, andvulnerable adults, is also seeking an indemnity against any funding clawbacks itmight face.

The dispute centres on the firm?s advice about a proposed merger with YoungBuilders Trust (YBT), which obtained most of its funding from the EuropeanSocial Fund.

Months after the merger, YBT collapsed into administration. St Christopher?sFellowship now fears it may be sued for £1.3m YBT owed to government offices.

According to the claim, MacIntyre Hudson carried out due diligence checks onYBT in 2006, and reported that it had a well defined future income stream of£1.5m a year. The firm found YBT had been very successful in running contractsproperly, and had good relationships with government offices.

Soon after the merger took place, audited accounts showed YBT?s position haddeteriorated, with an increased loss, negative reserves, and weaker thanexpected results.

St Christopher?s provided YBT with cash injections of £361,811, but decidedthat to provide more money was not in the best interests of its service users,and stopped paying out, according to the writ.

YBT went into administration in March 2007, and all 31 staff were maderedundant. Nineteen staffers took legal action claiming the charity was liableto pay them more than statutory hearing, but lost after a five day preliminaryhearing.

The Government Office for the South West also sought substantial sums fromYBT and the Welsh Assembly for breach of contracts, and indicated it mightpersue St Christopher?s Fellowship, according to the writ.

St Christopher?s Fellowship said MacIntyre Hudson failed to act on evidenceit had which suggested projects bids were over-optimistic, and included highlyspeculative figures.

The Fellowship argues if it had known of YBT's issues, via MacIntyre Hudson'sdue diligence work, it would not have gone ahead with the merger, according tothe writ.

St Christopher?s Fellowship said its losses include £15,336.10 for the costof the reports, the cash injection of £361,811, management time of £108,597,legal fees in defending the legal action by staff, £89,549, administration costsof £23,500, accountants? fees of £12,431, professional fees of £10,046, othercosts of £6,238, and a possible repayment of £1.3m. It is also seeking damages,and an order for an indemnity for any YBT funding it has to repay.

The writ was issued by James Bailey of Herbert Smith.

Mike Brown, chairman of Macintyre Hudson, said: ?This matter is subject tocourt proceedings and we have no further comment to make.?