Conflict in Sale and Purchase - PowerPoint Presentation

1. Conflict in Sale and PurchaseInstitute of Actuaries of IndiaServing the Cause of Public InterestIndian Actuarial ProfessionVichitra MalhotraIshwar GopashettiGopal KumarGuide: Mayur Ankolekar

2. Agendawww.actuariesindia.org2IntroductionBackgroundSituation at handKey IssuesKey ConsiderationsLikely mistakes made?How to deal with the situation?Professional Standards to considerProfessional Issues Key Professional Issues Areas for exercising cautionSummary

3. Introduction: Background3www.actuariesindia.orgInvestment Consultant, a qualified actuary, has two clientsClient AExisting Client: Trustees of Pension Fund of Company AScheme Actuary different from Investment ConsultantClient BNew Client: Trustees of Pension Fund of Company BCompany B to be formed from Management buyout* of Company AFinance Director of Company A to be CEO and Chairman of Trustees of Company B*Management buyout involves purchasing a controlling stake in Company by its executive directors and managersActuary agrees to be investment consultant of Company B’s trusteesDoes not envisage being potentially involved in buyout process in any wayBegins advising Client B on appropriate arrangements for new scheme / fund; everything agreed for new scheme except bulk transfer value from old scheme

4. Introduction: Situation at hand4www.actuariesindia.orgReceives letterStating the bulk transfer value has been agreedAsking him to make arrangements to transfer the moneyFinds Sale Purchase Agreement to be Ambiguous especially wordings on cash and alternative investmentsOpen to interpretationsPotential for advising Client A and Client B differently Receives Letter and Sale Purchase Agreement from Client B

5. Introduction: Key Issues5www.actuariesindia.orgIn hindsight, he may realize he did not consider potential for future conflict of interest in this assignment byBeing involved in buyout processBy being privy to key information of two clients when the buyout has not been completedHe faces a key issue of how to advice his two clients on the Sale Purchase agreement given its ambiguity12Faces two key issues

6. Key Considerations6www.actuariesindia.orgIssue: Did not realize potential for future conflict of interest to arise in the assignmentShould haveDisclosed the assignment to both clientsDiscussed with both clients and agree on areas of non involvement (such as buyout process)ShouldMake immediate disclosure to both clientsDiscuss any concern areas where he should not be involved till buyout is completed1Likely mistakes made…..2Dealing with the situation ……3Professional Standards to consider…..PCS (Section 5.2 and 5.3) prescribes“If there is or might appear to be a conflict of interest between two or more clients………, the actuary must consider the nature and extent of the conflict ………………..In the event of any such conflict or apparent conflict of interest, the client or clients involved must be notified at the earliest opportunity…….”

7. 7www.actuariesindia.orgIssue: How to advice his two clients on Sale Purchase Agreement?His clients are two trusteesNeither party to agreementOnly an apparent conflict of interest Notify both clients of the situationAdvice both clients that agreement is ambiguousAnd Companies advisors should sort it outOnce ambiguity sorted, he will consider transfer arrangements1Likely mistakes made…..2Dealing with the situation……3Professional Standards to consider …..Only an apparent conflict of Interest. PCS (Section 5.3) prescribes“In the event of any such conflict or apparent conflict of interest, the client or clients involved must be notified at the earliest opportunity…….”Key Considerations

8. Key Professional Issues8www.actuariesindia.orgSituation 1: Commenting on ambiguity of Sale Purchase AgreementBe wary of criticizing role of other actuaryUnderstanding of both parties may be clear even if wordings are ambiguousWork of number of professional and actuary may not be involved in sections of concernRole of other actuary may be considered providedTwo Companies disagree on intended meaningAcknowledge that other actuary may hold different opinionAcknowledge specific circumstances may exist of which he is not awareThings to Consider whilst CommentingPCS Section 8.1 and 8.3 prescribe“Members must avoid any action that would unfairly injure the professional reputation of any other member. Criticism of one member’s work by another member is acceptable, provided that the criticism is properly reasoned and believed to be justified.Where criticism of another member’s work is made in the context of ……….., care must be taken to acknowledge that other members may quite properly hold different professional opinions and that special circumstances may exist in any particular case.”Applicable PCS

9. Key Professional Issues9www.actuariesindia.orgSituation 2: Carrying out Transfer of MoneyEnsure he has relevant knowledge and experience to carry out transferEnsure he has been delegated discretionary authority by trustees and approved by relevant authority to mange investmentsIf not, should share his recommendations on transfer, rationale and risk associated with the dealThings to ConsiderPCS (Section 3.1 and 3.2) prescribes“An actuary is expected to use best judgement in giving advice, whilst paying proper regard to any relevant professional guidance or other guidance. He must keep himself abreast with updated professional guidance and adhere to that.As per 3.2 Actuaries must not give advice, unless:a) satisfied of personal competence in the relevant matters, orb) acting in co-operation with, or with the guidance of, someone (not necessarily an actuary) with the requisite knowledge and experience.”Applicable PCS

10. Areas for exercising caution10www.actuariesindia.orgAreas for exercising cautionPCS to considerConfidentialityActuary privy to following information (deemed confidential)Past investment information of Company ASale and Purchase documentDuring buyout process or otherwise, Actuary may be called upon to share specific information of Company A. Must consult his client and exercise caution in sharing any such information.PCS (Section 2.5.1) prescribes“As a matter of law, information acquired by an actuary in the course of professional work is frequently confidential to the actuary’s client or the actuary’s firm. As such, it should not normally be disclosed unless consent has been obtained from the actuary’s client or the actuary’s firm, as the case may be.”Financial InterestAppointment to new scheme made by Finance director of Company A . Ensure that this does not influence the advice to trustees of Company A and BFees and the remuneration should be specified at the outset Financial rewards if any, should not influence the quality of advice provided and be excluded from the purview of the advicePCS (Section 6.1) prescribes“An actuary must make full and timely disclosure to the client of any financial interest, which the actuary or the actuary’s firm may have in any assignment that the member undertakes for that client or in its outcome. Financial interest includes direct remuneration, direct and indirect benefits, commission and introductory fees paid by or to the actuary or the actuary’s firm.”

11. Summary11www.actuariesindia.orgSituationMistakes madeHow to deal now / Professional Issues to ConsiderPCS GuidanceAccepting Client B’s offerDid not anticipate future conflict of interestDid not disclose and discuss with clientsDisclose immediately and agree on areas of non involvementPCS section 5.2 and 5.3 advising on conflict of interest to be consideredAdvising both clients on sale purchase agreementClient are trustees who are not party to agreementOnly Apparent conflict of interestHighlight agreement is ambiguous and refer to Company’s advisors to sortPCS section 5.3 advising on conflict of interest to be consideredCommenting on sale Purchase AgreementNAWary of criticizing role of another actuary PCS Section 8.1 and 8.3 to be consideredCarrying out transfer of moneyNAEnsure he has expertise and is authorized to carry out transferGive recommendations on transferPCS Section 3.1 and 3.2 to considerAreas of cautionNAConfidentiality and Financial InterestPCS Section 2.5.1 and 6.1 to consider

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