Big Four action

KPMG sued for £1.3bn over Carillion audit

Carillion sign
Carillion was a big employer

Big four auditor KPMG is facing unprecedented legal action as government officials sue the firm for £1.3bn over the collapse of contractor Carillion.

The Official Receiver, part of the Insolvency Service which is liquidating the former blue-chip group, has lodged a formal claim against KPMG over its supervision of Carillion’s books. The action threatens to be one of the most costly in British corporate history.

Carillion collapsed in January 2018 with £7bn in debts, sending shockwaves through a range of sectors and projects, including hospitals, schools, railways and roads. About 3,000 jobs were lost.

KPMG’s failure to spot problems at the firm led to a number of inquiries and an overhaul of the audit profession.

The UK’s official receiver, a government official, has brought the action as part of its duty to try to maximise returns for creditors.

Particulars of the £1.3bn high court claim for audit negligence list dividends worth £210m paid by Carillion between 2014 and 2016, plus trading losses of nearly £1.1bn incurred as the group continued to trade when it should have been declared insolvent.

KPMG received £29m for its audit work for Carillion over 19 years.The liquidator alleged KPMG failed to remain independent from its client and failed to exercise proper professional scepticism.

A spokesperson for the receiver said: “Following extensive investigations looking into the causes of Carillion’s liquidation, the official receiver has submitted a claim to the high court concerning KPMG’s role as auditor for the company’s accounts.

“The official receiver has taken this action in the interests of creditors who lost substantially in the liquidation. The decision is based on legal advice, which is that KPMG is answerable to Carillion’s creditors for losses that have been caused.”

A KPMG UK spokesperson said: “We believe this claim is without merit and we will robustly defend the case. Responsibility for the failure of Carillion lies solely with the company’s board and management, who set the strategy and ran the business.”

The action against the firm comes in the week that it announced the biggest bonuses were paid to its partners since 2014.

Eight former Carillion directors are facing legal action from the Insolvency Service to prevent them from serving as directors. They are contesting the action.

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