UK Markets closed

Major Carillion shareholder reveals it had planned to sue as investors are asked what they knew

Rhiannon Curry
Carillion went into liquidation on January 15 - Getty Images Europe

One of Carillion’s largest shareholders was lining up to sue the group for loss of its clients’ money when the firm collapsed, as investors said the board failed to effect change as the company ­floundered.

A letter sent from Kiltearn Partners’ chief executive Murdoch Murchison to the House of Commons select committee leading the inquiry on Carillion’s downfall said that if it had not gone into liquidation, the company would have “considered participation in civil legal action against Carillion with a view to recovering a proportion of its clients’ crystallised losses”.

It had already made contact with Innsworth, which funds shareholder litigations, with a view to bringing a claim when Carillion was put into liquidation on Jan 15. Kiltearn, which held 10pc of Carillion’s shares in May last year, said it had doubts about the company’s future but had not realised the scale of the problem. 

It had voted all its shares against ­Carillion’s remuneration report in May last year because of “concerns about [former chief executive Richard] Howson’s level of remuneration relative to the company’s level of net income”, the letter said.

However, it said that nothing in ­Carillion’s annual report in March 2017 had indicated that the business was likely to announce a devastating £845m writedown later that year.

Responding to the letter, Rachel Reeves, chair of the business committee, said Carillion’s annual reports were “worthless as a guide to the true financial health of the company”.

Carillion | Government projects at time of collapse

Kiltearn was one of the firms which interim chief executive Keith Cochrane met last autumn following the writedown which led to Mr Howson’s departure and wiped 70pc off the firm’s value in a matter of days.

But Kiltearn’s evidence said Mr Cochrane could only provide “limited and vague” responses to “fundamental” questions, meaning that the company sold all its shares by January 4.

It said that there are “clear grounds” for an investigation into whether the management knew about its problems before the July writedown was made.

Meanwhile, other shareholders who have written to MPs as part of the inquiry said they had felt dissatisfied with management’s view of Carillion’s problems.

Standard Life Aberdeen began a process of divesting its 10.8pc of shares in December 2015, on the back of concerns about financial management, strategy and corporate governance. It had raised these with the board in regular meetings from then until it sold up completely in July 2017, a letter from the company’s chief executives Keith Skeoch and Martin Gilbert said.

They felt that the management was not giving “sufficient weight to the probability that trading may deteriorate further”. They added: “The board showed no inclination to drive the management to change.”

Canadian investor Letko Brosseau said it had tried four times to arrange a call with Carillion’s finance director ­Zafar Khan, and knew nothing of the company’s troubles until July. The ­letters were published ahead of the committee’s next hearing on Thursday, when auditors KPMG will appear ­before MPs.

Frank Field, chairman of the work and pensions committee, said Carillion’s directors had given the impression that the company had been trading well up until the July profit warning.

“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,” he said.