A major shareholder of Carillion PLC (LON:CLLN) considered suing the collapsed contractor on the suspicion that managers had underplayed the deterioration of the business in the lead up to its first profit warning last July.
Kiltearn Partners, which held 10% in Carillion, told MPs that it mulled legal action against the company with a view to recover a proportion of its clients’ losses.
Carillion entered compulsory liquidation in January after failing to secure a rescue deal with lenders or the government.
Kiltearn is among a group of former shareholders who submitted evidence to the Work and Pensions and Business Committee conducting an inquiry into Carillion’s demise. The evidence was published on Monday.
The Scottish investment firm suspected Carillion’s directors knew it was in difficulty before announcing a £845mln writedown of key contracts and a profit warning in July. It sold its final shares on January 4, shortly before Carillion went into liquidation.
Investors raised concerns with management before collapse
MPs revealed that some investors held onto their stakes to influence executive decision-making while others cut their losses and fled.
Standard Life Aberdeen PLC (LON:SLA) told MPs that it started to reduce its 10.8% shareholding from December 2015 and completely exited the business in July 2017 on concerns about the way Carillion was managed.
The company had met with Carillion’s board on multiple occasions to raise issues about the outsourcer’s performance and mounting debts before selling its stake.
"It was felt that management was not giving sufficient weight to the probability that trading may deteriorate further, or to the downside risk from this scenario given the high level of debt," Standard Life Aberdeen said.
Canadian investor Letko Brosseau also attempted to meet Carillion's finance director on four occasions but was regularly snubbed until the company's first profit warning.
Shareholders were 'fleeing for the hills', says MP
Frank Field, chair of the Work and Pensions and Business Committee, said the evidence from investors suggested a “disconnect” with testimony given by directors.
“On one hand the Carillion directors told us all was sunny until a bolt of Qatari lightning hit them out of the blue,” Field 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.”
MPs are due to question the company’s auditor KPMG at a hearing on Thursday.