A settlement has been reached with accountancy giant KPMG over an investment fund allegedly targeted by fraudsters.

The agreement of a confidential settlement was discussed at a winding up hearing for island-based Heather Capital Limited.

Liquidator Paul Duffy of Ernst & Young was appointed to Heather Capital in 2010. Investigations later confirmed that millions of pounds of funds had gone missing, with evidence that deliberate fraud had been carried out.

The Manx high court has previously heard evidence of fraudulent loans and repayments to Heather funded in a circular way by the company itself.

In 2015 the liquidator issued proceedings against Heather’s auditors KPMG alleging it negligently failed to detect and report frauds and imprudent lending by Heather’s management.

Total damages claimed exceeded £100m.

Now the high court in Douglas has heard that a confidential settlement has been reached with KPMG.

Alan Gough, representing the liquidator, sought court approval for the way recoveries would be distributed to creditors.

Heather had two feeder funds - island-based Aarkad plc and Delaware-based Lomond Capital.

Aarkad and Lomond raised funds from international investors who were their shareholders and then invested them in Heather.

Alan Gough, representing the liquidator, said: ’Then as we know everything went wrong. There’s no doubt, as we say, a fraud was perpetrated on Heather and vast amounts have been lost.’

He said that with Aarkad and Lomond having no money, Heather’s liquidator had pursued claims against KPMG by all three companies.

Mr Gough said the liquidator had gone to a litigation funder to fund the cost of pursuing the claims.

’We have a settlement in relation to all three claims,’ he told the court.

He said the liquidator’s proposed course of action was to split the settlement figure between Heather, Aarkad and Lomond by the proportions 82%, 16% and 2%.

As Heather had carried out all the work to reached a settlement, it would receive 30 per cent of Aarkad and Lomond’s share of net recoveries.

Deemster Andrew Corlett postponed judgment on an agreed way forward, pending confirmation that the liquidator’s proposals had the support of the committee of inspection.

KPMG was auditor for Heather, Aarkad and Lomond from 2006 to 2008. Alleged fraud involving loans of £95m to special purpose vehicles took place before any alleged negligence by the auditors. KPMG denied negligence.