£5bn of liabilities
The Committees will be investigating how a company that was signed off by KPMG as a going concern in Spring 2017 could crash into liquidation with a reported £5bn of liabilities and just £29 million left in cash less than a year later.
The Committees are initially calling in a series of former directors of Carillion, the Insolvency Service who will be investigating the company's descent into bankruptcy, and the Financial Reporting Council who regulate the auditors that signed off the company's accounts.
In 2016, Carillion paid dividends to its shareholders of £78.9 m from 2015's profits: exceeding the £73 million it generated in cashfrom operations. It paid a further dividend of £54 million in June 2017 – just one month before its first profit warning.
Pension scheme deficit
Despite a rising pension scheme deficit, Carillion paid in only £51 million in 2016, three million lower than the previous year, and £27.9 million less than it allocated for dividends over the same period.
The headline pension deficit figure reported in company accounts for the 29,000 member scheme was £587 million as of the first half of 2017, up from £318 million in 2015. During the same period, net borrowing within the company ballooned from £170 million to £571 million. Recent reports put the full liability buyout figure for the pension fund at £2.6 billion, with the PPF estimating it will cost them £8-900 million to finance the shortfall in the scheme.
In 2016, Carillion changed the company's pay policy to relax its clawback conditions for executive bonuses, limiting the criteria under which the company could demand the repayment of executive bonuses. Previously the firm could ask for cash back if the business went bust but the revised policy said it could only do so in the event of gross misconduct or if the financial results had been misstated. On 17 January this year the Government announced that Carillion’s directors and executive will not get any bonuses or severance payments.
Tuesday 30 January 2018, location TBC
- The Financial Reporting Council
- The Insolvency Service
- Chris Martin, Managing Director, Independent Trustee Services Ltd (Member of Carillion DB Pension Scheme Trustee Board since 8 January)
- Robin Ellison, Chair of Trustees of Carillion DB Pension Scheme
Tuesday 6 February 2018, location TBC
- Richard Howson, Chief Executive, December 2012 – July 2017
- Phillip Green, Chairman, May 2014 – Monday 15 January 2018
- Richard Adam, Finance Director, April 2007 – December 2016
- Zafar Khan, Finance Director, January 2017 – September 2017
- Keith Cochrane, Interim Chief Executive, July 2017 – Monday 15 January 2018
- Emma Mercer, Finance Director September, 2017 - Monday 15 January 2018
Auditors must account for themselves
Frank Field MP, Chair of the Work and Pensions Select Committee, 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.
It must also be time now for the auditors who cosily signed off this disaster-in-the-making as a 'going concern' less than a year ago to begin to account for themselves."
Another corporate governance failure
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?
What were the Carillion board and senior management doing to address the spiralling problems at the company? Why are the regulatory bodies stepping in only after Carillion’s collapse? As a Committee we will also want to explore the executive pay arrangements at Carillion, the potential cost to the taxpayer of the insolvency, and the role of both directors and non-executive directors in the company’s collapse."
This inquiry will build on the Work & Pensions Committee's inquiry into defined benefit pension schemes and the BEIS Committee's work on corporate governance.
Members conducting the inquiry
Work and Pensions Committee: Frank Field – Co-Chair (Labour), Heidi Allen (Conservative), Andrew Bowie (Conservative), Ruth George (Labour), Chris Stephens (Scottish National Party)
BEIS Committee: Rachel Reeves MP (Co-Chair) (Labour), Stephen Kerr MP (Conservative), Peter Kyle MP (Labour), Rachel Maclean MP (Conservative), Antoinette Sandbach MP (Conservative)