Institute of Actuaries of India
Conflict in Sale and Purchase
Vichitra Malhotra
Ishwar Gopashetti
Gopal Kumar
Guide: Mayur Ankolekar
Indian Actuarial Profession
Serving the Cause of Public Interest
Agenda
•
Introduction
 Background
 Situation at hand
 Key Issues
•
Key Considerations
 Likely mistakes made?
 How to deal with the situation?
 Professional Standards to consider
•
Professional Issues
 Key Professional Issues
 Areas for exercising caution
•
Summary
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Introduction: Background
Investment Consultant, a qualified actuary, has two clients
Client A
Client B
•
Existing Client: Trustees of Pension Fund of Company A
•
Scheme Actuary different from Investment Consultant
•
New Client: Trustees of Pension Fund of Company B
•
Company B to be formed from Management buyout* of Company A
•
Finance 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 managers
•
Actuary agrees to be investment consultant of Company B’s trustees
•
Does not envisage being potentially involved in buyout process in any way
•
Begins advising Client B on appropriate arrangements for new scheme / fund; everything agreed
for new scheme except bulk transfer value from old scheme
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Introduction: Situation at hand
Receives Letter and Sale Purchase Agreement from Client B
Receives letter
•
Stating the bulk transfer value has been agreed
•
Asking him to make arrangements to transfer the money
Finds Sale Purchase Agreement to be
•
Ambiguous especially wordings on cash and alternative investments
•
Open to interpretations
•
Potential for advising Client A and Client B differently
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Introduction: Key Issues
Faces two key issues
1 In hindsight, he may realize he did not
consider potential for future conflict of
interest in this assignment by
•
Being involved in buyout process
•
By being privy to key information of two
clients when the buyout has not been
completed
2
He faces a key issue of how to advice his two
clients on the Sale Purchase agreement given
its ambiguity
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Key Considerations
Issue: Did not realize potential for future conflict of interest to arise in the assignment
1
2
Likely
made…..
mistakes
3
Dealing with
situation ……
the
Should
Should have
the
both
• Make
immediate
disclosure to both
clients
• Discussed with both
clients and agree on
areas
of
non
involvement (such as
buyout process)
• Discuss any concern
areas where he should
not be involved till
buyout is completed
• Disclosed
assignment
clients
to
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Professional
Standards
consider…..
PCS (Section
prescribes
to
5.2
and
5.3)
“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…….”
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Key Considerations
Issue: How to advice his two clients on Sale Purchase Agreement?
1
2
Likely
made…..
3
Dealing with
situation……
mistakes
the
• His clients are two
trustees
• Notify both clients of
the situation
• Neither
party
agreement
• Advice both clients that
agreement
is
ambiguous
to
• Only
an
apparent
conflict of interest
• And
Companies
advisors should sort it
out
Professional
Standards
consider …..
to
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…….”
• Once ambiguity sorted,
he
will
consider
transfer arrangements
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Key Professional Issues
Situation 1: Commenting on ambiguity of Sale Purchase Agreement
Things to Consider whilst Commenting
Applicable PCS
• Be wary of criticizing role of other actuary
PCS Section 8.1 and 8.3 prescribe
• Understanding of both parties may be clear even if
wordings are ambiguous
“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.
• Work of number of professional and actuary may
not be involved in sections of concern
• Role of other actuary may be considered provided

Two Companies disagree on intended meaning

Acknowledge that other actuary may hold
different opinion

Acknowledge specific circumstances may exist
of which he is not aware
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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.”
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Key Professional Issues
Situation 2: Carrying out Transfer of Money
Things to Consider
Applicable PCS
• Ensure he has relevant knowledge and
experience to carry out transfer
PCS (Section 3.1 and 3.2) prescribes
• Ensure he has been delegated discretionary
authority by trustees and approved by
relevant authority to mange investments
“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.
• If not, should share his recommendations
on transfer, rationale and risk associated
with the deal
As per 3.2 Actuaries must not give advice, unless:
a) satisfied of personal competence in the
relevant matters, or
b) acting in co-operation with, or with the
guidance of, someone (not necessarily an
actuary) with the requisite knowledge and
experience.”
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Areas for exercising caution
Areas for exercising caution
PCS to consider
Confidentiality
PCS (Section 2.5.1) prescribes
Actuary privy
confidential)
to
following
information
(deemed
• Past investment information of Company A
• Sale and Purchase document
During buyout process or otherwise, Actuary may be
called upon to share specific information of Company A.
“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.”
Must consult his client and exercise caution in sharing any
such information.
Financial Interest
PCS (Section 6.1) prescribes
• Appointment to new scheme made by Finance director
of Company A . Ensure that this does not influence the
advice to trustees of Company A and B
“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.”
• Fees 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 advice
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Summary
Situation
Accepting Client B’s
offer
Advising both clients on
sale purchase
agreement
Mistakes made
• Did not anticipate future
conflict of interest
• Did not disclose
discuss with clients
and
• Client are trustees who
are not party to
agreement
• Only Apparent conflict of
interest
Commenting on sale
Purchase Agreement
NA
Carrying out transfer of
money
NA
Areas of caution
NA
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How to deal now / Professional
Issues to Consider
PCS Guidance
• Disclose immediately and
agree on areas of non
involvement
PCS section 5.2 and 5.3
advising on conflict of
interest to be considered
• Highlight agreement is
ambiguous and refer to
Company’s advisors to sort
PCS section 5.3 advising
on conflict of interest to
be considered
• Wary of criticizing role of
another actuary
PCS Section 8.1 and 8.3 to
be considered
• Ensure he has expertise and
is authorized to carry out
transfer
• Give recommendations on
transfer
• Confidentiality and Financial
Interest
PCS Section 3.1 and 3.2 to
consider
PCS Section 2.5.1 and 6.1
to consider
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