Investors in Carillion were “fleeing for the hills” after spotting that the construction giant was heading for disaster, it has been revealed.
Evidence to a parliamentary inquiry into the company’s collapse last month showed that one leading investor was considering suing Carillion.
Almost 1,000 former Carillion workers have been made redundant and jobs have also been lost among subcontractors since the firm went into liquidation.
Auditors KPMG will be questioned on Thursday by both the Business, Energy and Industrial Strategy Committee and the Work and Pensions Committee – and asked why Carillion’s accounts were signed off.
Frank Field, chairman of the Work and Pensions Committee, said the suggestion investors were aware of the firm’s dire situation proves there is a disconnect with what Carillion directors told MPs earlier this month – that all was well until problems with a contract in Qatar hit them “out of the blue”.
The MP said: “Their stewardship had, they proudly told us, been adjudged ‘best in class’ by their friends at 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.”
Rachel Reeves, who chairs the Business, Energy and Industrial Strategy Committee, 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.
“Carillion’s annual reports were worthless as a guide to the true financial health of the company.
“The fact that it was impossible to get a true sense of the assets, liabilities and cash generation of the business raises serious questions about Carillion’s corporate governance.
“KMPG will have to explain why they signed off on accounts which appeared to bear so little relation to reality.”
Kiltearn Partners, which held as much as 9.85 per cent of Carillion’s shares last year, said in a letter to the committees that they believe “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” – and that if Carillion had not gone into liquidation, they would have “considered participation in civil legal action against Carillion with a view to recovering a proportion of its clients’ crystalised losses”.
Kiltearn began selling shares in August. At a meeting with Carillion on 13 October, they said former interim chief executive Keith Cochrane could only provide “limited and vague” responses to “fundamental” questions – and consequently Kiltearn sold all shares by 4 January this year.
Standard Life Aberdeen began a process of divestment in December 2015 due to concerns about financial management, strategy and corporate governance, which they raised with the board in regular meetings from then until they sold up completely in July 2017, the committees were told.