Accounting blunder led Ageas to over-value Kwik Fit by £17.5m - writ

Ageas has accused Kwik Fit of making an accounting blunder which led to the sale of its insurance arm being over-valued by £17.5m.

Ageas is now suing Kwik Fit for £5m plus interest, the recently released details of the writ show. Ageas paid £215m for Kwik Fit Insurance Services in July 2010.

Prior to the sale, Kwik Fit Insurance Services had in some cases entered into upstream contracts with insurers, which meant that it paid insurers the premium and then recovered the amount from the customers, it is claimed.

Customers were allowed to pay premiums in instalments, and pending amounts due were called ‘debts’.

To improve its cash flow, Kwik Fit Insurance Service entered into a debt purchase facility with Barclays Bank.

The deal meant that Barclays would purchase Kwik Fit Insurance Service’s debts at a discount.

The writ says that the deal did not include ‘bad debts’ – policies where the customer has not paid sufficient direct debit payments up to the date of cancellation.

Kwik Fit Insurance Services wrongly believed that Barclays had assumed liability for the ‘bad debts’ and that the ‘bad debts’ could be re-charged to the bank for accounting purposes, it is alleged.

The writ says: “As the claimant now understands, both Kwik Fit Insurance Services and The Green Insurance Company wrongly accounted for the aforesaid portion of the bad debts in a manner which reflected their common misapprehension as to the operation of the Debt Purchase Facility Arrangement.”

Ageas alleges that the error led it to over-value Kwik Fit Insurance Services by £17.5m, but contractually, it can now only claim £5m.

Ageas is demanding 8% interest on the £5m sum, meaning Kwik Fit Insurance Services should pay £1,095.89 per day.

Ageas and Kwik Fit declined to comment. When Insurance Times requested defence documents, none was available.