Country's second biggest contractor went bust in January owing millions
The government has published its response to the findings from the joint committee inquiry into Carillion’s catastrophic collapse.
The government’s response covers five recommendations made by the business and work and pensions committees in their report on their findings.
Its response did not suggest the government would undertake any action in response to the collapse and largely referred to powers already held by regulators and existing investigations.
The government cited the powers of the Insolvency Service, Financial Reporting Council (FRC), Competition and Markets Authority (CMA) and Financial Conduct Authority (FCA) as well as Sir John Kingman’s independent review of the FRC in its responses.
The government rejected the suggestion that it should set a minimum standard for bonus clawbacks saying this was a matter for the shareholders of individual firms. But it did say the FRC would publish a revised Corporate Governance Code soon and that this would include a “new emphasis” on the importance of approving regulations.
In response to the inquiry’s request that the government recommend the CMA consider breaking up the big four accountancy firms, the government said the CMA was “actively considering the issue”.
The concerns raised by the committee about PwC’s appointment to the special manager position and the fact there was no cap on fees was addressed by the Insolvency Service rather than the government.
The Insolvency Service said: "A protocol had been agreed between the Official Receiver and PwC setting out the work that the special managers carry out and the governance that applies."
It said the court had agreed a payment of £22.9m for the special managers’ costs in the period from 15 January to 31 March.
Recommendations government responded to:
- We recommend changes to ensure that all directors who exert influence over financial statements can be investigated and punished as part of the same investigation, not just those with accounting qualifications
- Government should provide the FRC with the necessary powers to be a more aggressive and proactive regulator . . . to provide a sufficient deterrent against poor boardroom behaviour and drive up confidence in UK business standards . . . and that such an approach will require a significant shift in culture at the FRC.
- The current Stewardship Code is insufficiently detailed to be effective and, as it exists on a comply or explain basis, completely unenforceable. It needs some teeth. Proposals for greater reporting and transparency in terms of investor engagement and voting records are very welcome and should be taken forward speedily. However, given the incentives governing shareholder behaviour, and the questionable quality of the financial information available to them, we are not convinced that these measures in themselves will be effective in improving engagement, still less in shifting incentives towards long-term investment and away from the focus on dividend delivery. A more active and interventionist approach is needed in the forthcoming revision of the Stewardship Code, including a more visible role for the regulators, principally the Financial Reporting Council.
- There is merit in Government and regulators considering a minimum standard for bonus clawback for all public companies, to promote long-term accountability
- We are concerned that the decision by the court not to set any clear remuneration terms for PwC’s appointment as Special Managers, and the inability of the appointees to give any indication of the scale of the liquidation, displays a lack of oversight. We have seen no reliable estimates of the full administrative costs of the liquidation, and no evidence that Special Managers, the Official Receiver or the Government have made any attempt to calculate it. We have also seen no measures of success or accountability by which the Special Managers are being judged. As advisors to Government and Carillion before its collapse, and as Special Managers after, PwC benefited regardless of the fate of the company. Without measurable targets and transparent costs, PwC are continuing to gain from Carillion, effectively writing their own pay cheque, without adequate scrutiny. When the Official Receiver requires the support of Special Managers, these companies must not be given a blank cheque. In the interests of taxpayers and creditors, the Insolvency Service should set and regularly review spending and performance criteria and provide full transparency on costs incurred and expected future expense.