The UK’s financial regulator has said it is planning to take action against former directors of Carillion, almost three years after the government contractor collapsed under £7bn of liabilities, leaving taxpayers to pick up the pieces.
On Friday, the Financial Conduct Authority announced that it had issued warning notices to the company itself and to “certain previous executive directors” over a series of breaches of financial rules before the business failed.
These include giving “false or misleading signals as to the value of its shares”, “failing to take reasonable care to ensure that its announcements were not misleading, false or deceptive”, and “failing to take reasonable steps to establish and maintain adequate procedures, systems and controls”.
Despite these findings, the FCA only gave details of a proposed “public censure” of the company*, instead of “a financial penalty”. It did not comment on possible sanctions against the directors, or name them, because the case is ongoing. It also stressed that warning notices are not final decisions and individuals may appeal against any decisions to its upper tribunal.
Prem Sikka, professor of accounting at the University of Sheffield and a member of the House of Lords, said: “There are 30,000 small and medium-sized enterprises who have lost money, thousands of employees who lost jobs and pension rights and the regulator has taken two years to do little or virtually nothing.”
Carillion, which had 43,000 employees worldwide including 19,000 in the UK, was liquidated in January 2018 with just £29m in cash and £7bn in liabilities, leaving the UK government to step in to ensure delivery of key services including school meals and cleaning of hospitals and prisons.
MPs have demanded that Richard Adam, a former finance director, Richard Howson, a former chief executive, and Philip Green, former chairman, be held to account for their role in the biggest UK corporate failure in recent years. In addition, the Financial Reporting Council is currently investigating the conduct of Mr Adam as well as another former Carillion finance director, Zafar Khan.
During their tenure, the company ran up debts and sold assets so that it could continue paying dividends to shareholders. It paid performance-related bonuses to executives just months before its collapse.
According to the FCA, the company “made misleadingly positive statements”, particularly in relation to its UK construction business, which did not reflect “significant deteriorations” in its expected performance.
Although the directors “were each aware” of this problem, and the increasing financial risks the business faced, the regulator found that they failed to inform the company’s board or audit committee, or check the accuracy of its public announcements — despite being responsible for them. The FCA concluded that, in doing so, they “acted recklessly”.
Campaigners criticised the lack of any detail on possible sanctions against individuals.
However, Nick Bayley, a former FCA regulator who is now head of UK regulatory consulting at Duff & Phelps, said any subsequent enforcement action against directors would have an impact.
“The headline market abuse offence, of being knowingly concerned in recklessly misleading the market, is one that — if proven — will have serious reputational and financial consequences for the individuals involved,” he noted.
Tom Sasse, of the Institute for Government, said it showed that “checks and balances on companies like Carillion remain much too weak and too slow”.
He added: “The government promised reform but we are yet to see it follow through, including with the primary legislation needed to strengthen audit.”
*This article has been corrected since original publication to clarify that the FCA’s proposed censure at this stage applies to Carillion, the company