POLITICS
24/01/2018 12:04 GMT

Carillion Directors To Be Grilled By MPs Over Contractor's Disastrous Collapse

'How is it that so many warning signs were ignored by the company and the Government?'

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Carillion directors will be hauled before law-makers amid reports the outsourcing giant’s collapse is costing the public purse £5.4m a day. 

A cross-committee inquiry by MPs will probe how Carillion, which was signed off by accountants KPMG as a going concern in spring 2017, came to crash into liquidation less than a year later with a reported £5bn of liabilities and £29m left in cash. 

It employed 20,000 people and derived £1.7bn – a third of its revenue – from contracts across education, the NHS, prisons, defence and rail. It was also the preferred provider for HS2.

Former chief executive Richard Howson, interim chief executive Keith Cochrane and chairman Philip Green have been called to give evidence to the joint Work and Pensions and BEIS (Business, Energy and Industrial Strategy) inquiry. 

Howson will no doubt be asked to explain how he struck a deal which allowed him to step down after the profits warning and continue to receive his £660,000 salary and £28,000 benefits until October 2018. 

Despite the firm’s deteriorating finances, directors continued to be paid huge sums and dividends to shareholders climbed by 33% between 2010 and 2016.

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Rachel Reeves, chair of the BEIS committee, is demanding answers. 

Rachel Reeves MP, chair of the Business, Energy and Industrial Strategy (BEIS) Committee said: “In the wake of the BHS scandal, Carillion has the hallmarks of another corporate governance failure with directors asleep at the wheel while the business went off a cliff, in this case leaving jobs, pensions and public services under threat and a host of suppliers out of pocket. How is it that so many warning signs were ignored by the company and the Government?” 

The Financial Reporting Council, the Insolvency Service and Chris Martin, Managing Director of the Independent Trustee Services have also been asked to appear. 

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Frank Field, chair of the Work and Pensions Select Committee, says the company has questions to answer over its pensions deficit. 

Despite a growing deficit, Carillion paid just £51m in 2016, £3m lower than the previous year, and £27.9m less than it allocated for dividends over the same period. The headline pension deficit figure reported in company accounts was £587 million in 2017, up from £318 million in 2015. Net borrowing ballooned from £170m to £571m over the same period. 

Field said: “Another day, another company goes bust hot on the heels of a clean bill of health from a Big Four financial services firm. The particularly nasty twist in this now grimly familiar tale is the mountain of debt and giant pension deficit this public services contractor leaves in the wreckage of its collapse– with an accompanying massive hit to the public purse.” 

 Labour has hit out over the dividends paid out to shareholders. In 2016, shareholders received £78.9m from 2015 profits: exceeding the £73m it generated. A further £54m was dished out in June, one month before Carillion’s first profit warning.

Rebecca Long-Bailey, Shadow Business Secretary, said: “It is a national scandal that Carillion paid out similar sums in dividends that could have filled the gaping hole in its pension fund. It also speaks volumes for the corporate governance that has been allowed to occur over the last seven years of Tory economic failure.

“The government have been asleep at the wheel, and are failing to act to prevent the ballooning pension deficits that we are seeing grow.” 

Carillion dividends
The dividends paid out to Carillion shareholders over time

It comes as Prime Minister Theresa May comes under increasing pressure to explain why the Government awarded Carillion more than £1bn of public contracts after the firm issued a profits warning in June. 

Labour will force a binding vote in the House of Commons on Wednesday requiring ministers to hand over risk assessments of contracting giant Carillion and all of the Government’s “Strategic Suppliers”. 

The Government has so far refused to publish any details about its contingency plans for Carillion’s collapse.  

Jon Trickett MP, Shadow Minister for the Cabinet Office, said: “Carillion’s collapse has exposed the Tories’ reckless over-reliance on outsourcing in our schools, hospitals and other public services. Yet, looking at the instability of lots of these suppliers, it appears that Carillion is not an isolated case.” 

An investigation by the Official Receiver will examine Carillion’s collapse and directors’ role in it. 

Business Secretary Greg Clark has demanded that the probe is fast-tracked.