Baker Tilly attacks liability cap

Baker Tilly chairman Clive Parritt has written to venture capitalists saying they should employ ‘alternative suppliers’ – including his own firm – if they are dissatisfied with the Big Six liability cap on due diligence work.

‘It is not true that international investigations can only be undertaken by the six largest firms,’ he said in a letter circulated to the industry.

‘Capping is a strange way of expressing belief in the quality of one’s own work.’

Baker Tilly, the 17th largest UK firm, has ‘always been willing to accept responsibility for the consequences of its actions’, he wrote.

Parritt was reluctant to say whether his own firm had picked up more due diligence work as a result of Big Six intransigence on liability.

‘I do know that some venture capitalists are annoyed enough to be using others. That must be true of us, too.’

His efforts to drum up business come as a survey reveals widespread discontent in the venture capital industry with the attitude of the Big Six. Twenty-three out of 25 venture capital houses surveyed by eighth-ranked firm BDO Stoy Hayward oppose the non-negotiable contract terms on liability.

One was supportive of the move while another was indifferent.

But venture capitalists also said that the accountants’ stance on liability was the least important of seven criteria. They regarded firms’ ‘willingness to give clear commercial advice’ and reputation as being more crucial in selecting an accountant.

Almost 90% of respondents objected to an overall cap of u25m, and 80% opposed the special cap on high-risk transactions. But 56% accepted the idea of an apportionment of blame clause, while 88% said that a cap equal to the size of a transaction was acceptable.

A spokeswoman for the BVCA, however, warned that all Big Six capping clauses were drafted to include legal costs and interest, reducing the effective cover available.

Are non-Big Six firms getting more due diligence work from venture capitalists?

‘We have seen some evidence of that’.

– David Spence, senior investigations partner at Grant Thornton

‘It’s a pound to a penny-farthing that everybody else is using the same firms they were before.’

– a leading venture capitalist who insists he is still using Big Six firms

‘Without any doubt the firms outside the Big Six are picking up a lot of the work on those deals now.’

– Geoff Westmore, head of corporate finance at Coopers & Lybrand

‘A lot depends on the size of the transaction and whether, say, it’s a European or international deal. That becomes more difficult with a non-Big Six firm.’

– Norman Murray of Deutsche Morgan Grenfell Development Capital and vice chairman of the British Venture Capital Association

‘Yes, we are getting more work, and so are other non-Big Six firms.’

– Dermot Mathias, BDO Stoy Hayward.