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26 Commitments and contingencies

Operating lease commitments
EYNL has entered into long-term leases for office premises and operating leases for personal computers, mobile phones, copiers/printers and cars. These leases have an average life between 1 and 10 years and may contain renewal options. Future minimum rentals payable are as follows:

Year ended 30 June 2016   IT related
  Cars   Office
    €000   €000   €000   €000
Within 1 year   1,696   15,725   20,684   38,105
Between 1 and 5 years   736   22,032   68,636   91,404
More than 5 years   -   -   20,329   20,329
    2,432   37,757   109,649   149,838
Year ended 30 June 2015   IT related
  Cars   Office
    €000   €000   €000   €000
Within 1 year   2,487   14,671   23,178   40,336
Between 1 and 5 years   2,215   21,535   88,955   112,705
More than 5 years   -   -   40,352   40,352
    4,702   36,206   152,485   193,393

The lease commitments relate only to the actual commitments at year end, excluding any service or other charges. Future rent increases were disregarded, except for those contracts which have been indexed (assumed to be 1.5%). Guarantees totalling some €0.8 million (2014/2015: €1.1 million) have been issued for lease commitments.

Effective 1 January 2016, EYNL entered into new contracts with three car lease companies. Under these contracts, the cars are recognized as operating leases. The previously existing contracts with the other car lease companies remain unchanged.

Finance lease commitments
Finance lease charges for the financial year amount to €1.1 million (2014/2015: €2.1 million).

Future minimum lease payments under finance leases and the present value of the net minimum lease payments are as follows:

Present value
of payments
(Note 17)
Present value
of payments
(Note 17)
    €000   €000   €000   €000
Within 1 year   435   431   2,110   2,017
Between 1 and 5 years   -   -   331   326
After 5 years   -   -   -   -
Total minimum lease payments   435   431   2,441   2,343
Lease charges still to be incurred (incl. fuel)   -12   -12   -276   -264
Total minimum lease commitment   423   419   2,165   2,079
Less: amounts representing finance charges   -4   -   -86   -
Present value of minimum lease commitment   419   419   2,079   2,079

The leases for cars have a remaining average term of 0.01 year (2014/2015: 0.5 year). Leased assets are pledged as security for the related finance lease.

Contingent assets
In connection with the representation of VGAN9 with effect from 1 March 1999 and the termination of the joint operating agreement with EYB, an amount is conditionally payable by HVG which will be recognized as income when received.

An income of €1.4 million (2014/2015: expense of €1.5 million) has been taken to the 2015/2016 statement of profit or loss and other comprehensive income within this context (Other income respective Other operating expenses).

Contingent liabilities
As part of the purchase agreements with the previous owners of the during 2015/2016 acquired entities, deferred considerations has been agreed. Payments of these considerations are subject to the retention of the former ultimate shareholders.

There will be additional cash payments to the previous owners of these acquired entities, if still employed by EY, of maximum €6.6 million, based on three annual payments of €2.2 million depending on the achieved levels of revenues in the three years after completion of the acquisitions.

Proceedings and claims
Disciplinary and civil law proceedings and claims have been brought against entities pursuant to alleged professional negligence and other claims. Forceful defence is put up against such proceedings and claims, which sometimes involve substantial amounts. In many cases it is exceedingly difficult to estimate the risks involved due to many uncertainties regarding facts, the legal position of all parties involved and other legal issues.

Insurance cover is carried in respect of professional indemnity. Cover is principally written through captive insurance companies and a proportion of the total cover is reinsured through the commercial market. Cases are usually resolved within three years, although claims that involve court action may take longer to resolve. Where appropriate, provision is made for costs arising from such claims representing the estimated costs of defence and settlements below the uninsured policy excess. Separate disclosure is not made of any individual claim or expected insurance recoveries where such disclosure might seriously prejudice the position of the entity.

Contingent liabilities, including liabilities that are not probable or which cannot be measured reliably, are not recognized but are disclosed unless the possibility of settlement is considered remote.

Authority Financial Markets (AFM)
On March 16, 2016 the AFM imposed an administrative fine of €2.2 million on EYA for violation of its duty of care. This fine followed the inspection regarding the 2012 audits (AFM report dated 25 September 2014). EYA filed an objection. In accordance with IAS 37.92 we provide no further detailed information.

Deferred balance – member firms
EY member firms, including EYNL, have entered into an agreement under which certain expenses of, and investments in, the global network are charged to the member firms. An annual charge is levied on each member firm existing at the time based on a percentage of the member firm’s revenues for that period. These charges are recognized as an expense in the period in which the revenues are earned. No liability is recognized in respect of potential future charges because no current obligation is considered to arise at year-end.

Funding of settlement of drawing rights
Contributions totalling €217.9 million were obtained from EYGS on behalf of EY Europe to fund the settlement of drawing rights:
  • On behalf of EY Europe, EYGS has committed a total of €98.9 million in loans to finance the settlement of drawing rights in 2008/2009. On 27 June 2012, this loan was transferred to EYGF. The final instalment of €14.8 million is paid in 2015. Repayment of €39.5 million will be determined based on future cash flows.
  • A contribution of €74.1 million has to be repaid under the following circumstances only.
    - Bankruptcy or suspension of payments, failure to meet the loan terms and conditions, or appointment of a receiver or administrator.
    - Termination of participation in EY Global.
  • The difference (€44.9 million) between the amounts received and the fair value at the time of receipt in 2008/2009 is recognized as a contribution to the withdrawals paid (net amount recognized in equity, see Note 22).
9) VGAN is the legal predecessor of HVG.