November 28, 2020

FCA to censure Carillion for recklessly misleading investors – The Guardian

The City watchdog has said that Carillion and some of its executive directors “recklessly misled” markets and investors over the deteriorating state of its finances before the company collapsed into liquidation two years ago.

Carillion was one of the government’s biggest contractors, with work spanning the construction of roads and rail infrastructure to running school canteens. Its collapse was the biggest corporate failure in the UK in a decade and prompted criticism of its executives, auditors and the handling of public sector contracts by private companies.

On Friday, the Financial Conduct Authority said it had issued a formal warning notice to Carillion and certain former executive directors in September. The warning set out breaches of securities rules in market announcements made in 2016 and 2017 as the company’s spiralling debt pushed the business towards liquidation.

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

The watchdog said it proposed a “public censure” of Carillion, but added that it would not seek to impose a financial penalty. The FCA said it also intends to take action against the executive directors.

“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,” the FCA said.

“They failed to ensure that those Carillion announcements for which they were responsible accurately and fully reflected these matters. The FCA considers that Carillion and the relevant executive directors acted recklessly.”

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Prem Sikka, emeritus professor of accounting at Essex Business School, condemned the FCA for failing to impose a financial penalty to serve as a warning to other companies, tweeting:

Prem Sikka

Need evidence of UK regulatory failure? Look no further than Carillion collapse. Thousands lost jobs, savings, pensions. After nearly 2 yrs, the FCA censures directors, no financial penalty. That is not a deterrent . FCA is unfit to be a regulator.

November 13, 2020

Carillion and the executive directors facing censure will have an opportunity to challenge the FCA’s findings at an independent committee that will decide if sanctions are warranted. They can then appeal against any decision at an Upper Tribunal.

The assistant general secretary of the Unite trade union, Gail Cartmail, called for tougher legislation to prevent a repeat of Carillion’s failure. She said: “This case demonstrates everything that is wrong with corporate law in the UK, a failure to act before a company collapses, very slow investigations following a collapse, and then if action is taken it is only a slap on the wrist.”