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Carillion collapse: True scale of fundamental flaws being revealed, says Unite union

Gail Carmel, assistant general secretary of the Unite union, said: “The developing picture of the level of incompetence and mismanagement at Carillion is simply staggering”
Carillion workers
She added: “The government needs to act swiftly and introduce new laws to ensure that other companies are not allowed to collapse in the same manner"

The true scale of the fundamental flaws that allowed construction contractor Carillion PLC (LON:CLLN) to collapse earlier this month began to be revealed on Tuesday, leading the UK’s largest union to call for the urgent reform of company and pension laws.

Gail Carmel, assistant general secretary of the Unite union, said: “The developing picture of the level of incompetence and mismanagement at Carillion is simply staggering.”

Read: Carillion's troubles continue as accounting watchdog says to probe KPMG audits after profit warning

She added: “It is frightening that the legal framework in the UK is so weak that no one was able to intervene to prevent the company’s collapse, despite it now becoming apparent its financial problems began a decade ago. This was not a small company it employed 20,000 workers, with thousands more in its supply chain.

“The government needs to act swiftly and introduce new laws to ensure that other companies are not allowed to collapse in the same manner as Carillion.”

Her comments came as the first joint hearing by the UK parliament’s Business and Work and Pensions select committees into the collapse today heard from several witnesses including Stephen Haddrill, chief executive officer of the Financial Reporting Council (FRC), Sarah Albon, chief executive officer of the Insolvency Service, and Robin Ellison, chair of Trustees of Carillion’s Defined Benefit Pension Schemes.

During the hearing Rachel Reeves MP, chair of the business select committee revealed that the largest item on Carillion’s balance sheet was “goodwill”.

No money to pay administrators cost

In her testimony, Albon confirmed that “uniquely” the Insolvency Service had to be brought in following Carillion’s collapse as the company had no money to pay administrators cost. The total cost for the legal winding up Carillion is likely to be around £50mln, principally paid for by the taxpayer.

She added that the Insolvency Service investigation into whether Carillion’s directors should be disqualified or prosecuted is being hampered by “the incredibly poor standard of Carillion’s record keeping”.

Meanwhile, Haddrill of the FRC - the organisation responsible for regulating auditors, accountants and actuaries which launched a probe into KPMG’s audits of Carillion on Monday - told the committee that despite having had concerns about Carillion’s previous auditing process, its audit had not been reviewed since 2013.

He admitted that there was extremely poor corporate governance at Carillion, but this was not the responsibility of the FRC to investigate.

And, during Ellison’s evidence, it was confirmed that at the same time that Carillion was refusing to pay increased pension contributions it was borrowing money in order to pay shareholder dividends.

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