Auditor not responsible for client's 'deepening insolvency.' (Brief Article)An Illinois appellate court The Illinois Appellate Court is the court of first appeal for cases arising in the trial courts of the state of Illinois. The court has 54 judges serving five separate districts. ruled an insolvent corporation's auditors could not be held liable for failing to disclose the company's "deepening insolvency" that led to its bankruptcy. The suit was brought against Arthur Andersen For the U.S. Supreme Court case commonly known as Arthur Andersen, see . Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms (the other four are PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG), performing & Co. by J. William Holland, a trustee in bankruptcy trustee in bankruptcy n. a person appointed by a bankruptcy court to supervise the affairs of person or business which is in bankruptcy, determine both assets and debts, marshal (gather) and manage the assets if necessary, and report to the court. for the American Reserve Corporation (ARC) estate. Holland alleged that had ARC and its investors and creditors known the true state of the company's financial condition, they could have taken various steps--such as replacing management, raising additional capital and preventing further bad business practices--in order to forestall ARC's deepening insolvency. Andersen moved for summary judgment on the basis the only damages claimed by Holland were those of ARC's creditors. The circuit court agreed and ruled Holland had no standing to pursue these claims. On appeal, the appellate court A court having jurisdiction to review decisions of a trial-level or other lower court. An unsuccessful party in a lawsuit must file an appeal with an appellate court in order to have the decision reviewed. affirmed the lower court's dismissal, ruling the creditor's claim creditor's claim n. a claim required to be filed in writing, in a proper form by a person or entity owed money by a debtor who has filed a petition in bankruptcy court (or had a petition filed to declare the debtor bankrupt), or is owed money by a person who has died. that ARC was attempting to sustain against Andersen were creditors' personal claims. As such, only the creditors, not the insolvent estate, could pursue the claims. The court also was not persuaded by ARC's deepening insolvency theory, finding it no more than a veiled attempt to bring the creditors' claims in a different form. Consequently, the circuit court's summary judgment for Andersen was appropriate. (Holland v. Arthur Andersen & Co., 571 N.E. 2d 777) |
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