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Watchdog says 'reckless' Carillion misled markets as it teetered towards collapse

Tom Belger
·Finance and policy reporter
·2-min read
A contractor walks inside Carillion's Royal Liverpool Hospital site in Liverpool, Britain, on 16 January, 2018. Photo: Phil Noble/Reuters
A contractor walks inside Carillion's Royal Liverpool Hospital site in Liverpool, Britain, on 16 January, 2018. Photo: Phil Noble/Reuters

The construction giant Carillion “acted recklessly” and made “misleading positive statements” about its deteriorating finances before its collapse, according to a watchdog.

Carillion fell into liquidation in early 2018 in one of the biggest corporate collapses in recent years, leaving hundreds of projects and many workers and suppliers in the lurch.

The Financial Conduct Authority (FCA) announced on Friday it had handed Carillion and its former executive directors between 1 July 2016 and 10 July 2017 a warning notice.

It accused Carillion of breaching rules against market manipulation and the publication of misleading information during the period, as well as provisions on integrity and adequate procedures. Carillion fell into liquidation. Relevant executive directors at the time were “knowingly concerned” in the breaches, according to the regulator.

The FCA said three particular announcements by Carillion had been misleading and failed to disclose fully the ailing company’s true financial performance.

Watch: Why can't governments just print more money?

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“They made misleadingly positive statements about Carillion’s financial performance generally and in relation to its UK construction business in particular, which did not reflect significant deteriorations in the expected financial performance of that business and the increasing financial risks associated with it,” said an FCA statement.

The watchdog also criticised the company’s internal systems, procedures and controls. There was a “lack of proper oversight” as these were “not sufficiently robust” to ensure contract accounting judgements in its UK construction arm were made, recorded and reported appropriately to Carillion’s board and the audit committee.

“At material times, the relevant executive directors were each aware of the deteriorating expected financial performance within the UK construction business and the increasing financial risks associated with it. They failed to ensure that those Carillion announcements for which they were responsible accurately and fully reflected these matters,” added the FCA.

The announcement came on the same day prime minister Boris Johnson confirmed a £3.7bn ($4.9bn) funding package for new hospitals, including two major projects stalled by Carillion’s collapse.

The Royal Liverpool hospital in north-west England was supposed to open in 2017 but is now only expected to open in 2022. The Midland Metropolitan hospital just outside Birmingham was also delayed.

Carillion was involved in many other public sector contracts, including defence sites, schools and part of the HS2 rail line.

Watch: How did it come to this for Carillion?