Kiltearn says it looked at legal action against the firm
Carillion’s major shareholders have issued scathing responses to the company’s collapse, raising significant questions about the management of the failed contractor in the lead up to the company’s liquidation.
Responding to requests from the parliamentary committee joint inquiry into the company’s collapse, a number told a parliamentary inquiry into the firm’s collapse that there were plenty of early warning signs the company was in trouble.
Kiltearn Partners, who held 10% of Carillion’s shares in February and May 2017, said “there are clear grounds for an investigation into whether Carillion’s management knew, or should have known, about the need for a £845m provision due to receivables on its construction business earlier than July 2017”.
It also said if Carillion had not gone into liquidation, it would have “considered participation in civil legal action against Carillion with a view to recovering a proportion of its clients’ crystalised losses”.
At the AGM in May 2017, Kiltearn voted all its shares against the Remuneration Report because of “concerns about [chief executive Richard] Howson’s level of remuneration relative to the company’s level of net income”.
Kiltearn also said the company had become “impossible to value as it was not clear what future cash flows would be as there was no concrete information on critical factors” and that Carillion’s published information could “no longer be considered reliable and consequently no effective assessment of its finances could be made”.
At a meeting with Carillion on 13 October, Kiltearn said interim chief executive Keith Cochrane could only provide “limited and vague” responses to “fundamental” questions, leading to Kiltearn selling all its shares 11 days before the firm went under on 15 January.
Standard Life Aberdeen said it began selling its stake in December 2015 due to concerns about financial management, strategy and corporate governance.
It said it was “felt that management was not giving sufficient weight to the probability that trading may deteriorate further or to the downside risk from this scenario given the high level of debt. The board showed no inclination to drive the management to change.”
Labour MP Frank Field, chair of the work and pensions committee, said there was a disconnect within the information they were hearing from executives such as Howson (pictured).
He said: “On one hand, the Carillion directors told us all was sunny until a bolt of Qatari lightning hit them out of the blue. Their stewardship had, they proudly told us, been adjudged ’best in class’ by their friends at [Carillion’s auditor] KPMG.
“On the other hand, investors were fleeing for the hills, and it appears those who looked closest ran fastest. We will be taking evidence from the auditors and the investors - as well as demanding more company papers - to get to the bottom of who knew what and, most importantly, when.”
Field’s counterpart at the business committee Rachel Reeves said: “Investors spotted that Carillion was heading for disaster and fled. The company had unsustainably high levels of debt, weak cash-generation and was saddled with a widening pensions deficit.
“It’s a tragedy for those who have lost their jobs and the suppliers left struggling for survival that Carillion directors ignored these issues.”
Representatives from KPMG, which audited the failed contractor’s accounts every year since its inception in 1999, receiving £29.4m in fees,will be grilled by the joint committee this Thursday.