1. 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

2. 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

3. Introduction: Background
Investment Consultant, a qualified actuary, has two clients
Client A
Existing Client: Trustees of Pension Fund of Company A
Scheme Actuary different from Investment Consultant
Client B
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

4. Introduction: Situation at hand
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
Receives Letter and Sale Purchase Agreement from Client B

5. Introduction: Key Issues
Faces two key issues
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
He faces a key issue of how to advice his two clients on the Sale Purchase agreement given its ambiguity 1 2

6. Key Considerations
Issue: Did not realize potential for future conflict of interest to arise in the assignment 1
Likely mistakes made….. 2
Dealing with the situation …… 3
Professional Standards to consider…..
Should have
Disclosed the assignment to both clients
Discussed with both clients and agree on areas of non involvement (such as buyout process)
Should
Make immediate disclosure to both clients
Discuss any concern areas where he should not be involved till buyout is completed
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. Key Considerations
Issue: How to advice his two clients on Sale Purchase Agreement? 1
Likely mistakes made….. 2
Dealing with the situation…… 3
Professional Standards to consider …..
Notify both clients of the situation
Advice both clients that agreement is ambiguous
And Companies advisors should sort it out
Once ambiguity sorted, he will consider transfer arrangements
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…….”
His clients are two trustees
Neither party to agreement
Only an apparent conflict of interest

8. Key Professional Issues
Situation 1: Commenting on ambiguity of Sale Purchase Agreement
Be wary of criticizing role of other actuary
Understanding of both parties may be clear even if wordings are ambiguous
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
Things to Consider whilst Commenting
PCS 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 Issues
Situation 2: Carrying out Transfer of Money
Ensure he has relevant knowledge and experience to carry out transfer
Ensure he has been delegated discretionary authority by trustees and approved by relevant authority to mange investments
If not, should share his recommendations on transfer, rationale and risk associated with the deal
Things to Consider
PCS (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, or
b) 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 caution
PCS to consider
Confidentiality
Actuary privy to following information (deemed confidential)
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.
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 Interest
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
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
PCS (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. Summary www.actuariesindia.org Situation Mistakes made
How to deal now / Professional Issues to Consider
PCS Guidance
Accepting Client B’s offer
Did not anticipate future conflict of interest
Did not disclose and discuss with clients
Disclose immediately and agree on areas of non involvement
PCS section 5.2 and 5.3 advising on conflict of interest to be considered
Advising both clients on sale purchase agreement
Client are trustees who are not party to agreement
Only Apparent conflict of interest
Highlight agreement is ambiguous and refer to Company’s advisors to sort
PCS section 5.3 advising on conflict of interest to be considered
Commenting on sale Purchase Agreement NA
Wary of criticizing role of another actuary
PCS Section 8.1 and 8.3 to be considered
Carrying out transfer of money
Ensure he has expertise and is authorized to carry out transfer
Give recommendations on transfer
PCS Section 3.1 and 3.2 to consider
Areas of caution
Confidentiality and Financial Interest
PCS Section and 6.1 to consider