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Answers demanded over payments

Insurers pay suppliers as MPs grill Carillion executives

Aberdeen bypass

Aberdeen’s bypass is one of the projects affected by the firm’s collapse

An estimated £31 million is expected to be paid by insurers to help firms recover from the collapse of Carillion. 

Trade credit insurance covers firms against the risk of bad debts if a contractor goes bust.

Latest figures show that trade credit insurers paid out £210 million to businesses due to non-payment.

Carillion is the latest in a number of high profile company collapses such as Monarch, Palmer & Harvey, Multiyork and Misco. 

Mark Shepherd, an assistant director at the Association of British Insurers, said: “For all businesses, large or small, bad debt could easily put their day-to-day operations at risk, threatening the jobs of their employees. One insolvency can risk a domino effect to hundreds of firms in the supply chain.”

However, most companies will not have this cover and some will struggle to recover payments due.

MPs will grill executives who oversaw the collapse of Carillion while paying hefty dividends and failing to shore up its pension scheme.

The Work and Pensions committee and BEIS committee have launched a joint inquiry into the firm’s demise.

It left a mountain of debt, potential job losses in the thousands, a giant pension deficit and hundreds of millions of pounds of unfinished public contracts, reported to be costing the UK taxpayer £5.4 million a day.

The committees will be investigating how a company that was signed off by KPMG as a going concern in Spring 2017 could crash into liquidation with a reported £5 billion of liabilities and just £29 million left in cash less than a year later.

MPs are initially calling in a series of former directors of Carillion, the Insolvency Service which will be investigating the company’s descent into bankruptcy, and the Financial Reporting Council which regulates the auditors who signed off the company’s accounts. The first evidence session will be next week.

In 2016, Carillion paid dividends to its shareholders of £78.9 m from 2015’s profits: exceeding the £73m it generated in cash from operations. It paid a further dividend of £54m in June last year – just one month before its first profit warning.

Despite a rising pension scheme deficit, Carillion paid in only £51m in 2016, £3m lower than the previous year, and £27.9m less than it allocated for dividends over the same period. 

The headline pension deficit figure reported in company accounts for the 29,000 member scheme was £587m as of the first half of 2017, up from £318m in 2015.

During the same period, net borrowing within the company ballooned from £170m to £571m. Recent reports put the full liability buyout figure for the pension fund at £2.6bn, with the PPF estimating it will cost it £800m to £900m to finance the shortfall in the scheme.

In 2016, Carillion changed the company’s pay policy to relax its clawback conditions for executive bonuses, limiting the criteria under which the company could demand the repayment of executive bonuses.

Previously the firm could ask for cash back if the business went bust but the revised policy said it could only do so in the event of gross misconduct or if the financial results had been misstated. On 17 January this year the Government announced that Carillion’s directors and executive will not get any bonuses or severance payments.

Frank Field MP, Chair of the Work and Pensions Select Committee, said: “Another day, another company goes bust hot on the heels of a clean bill of health from a Big Four financial services firm.

“The particularly nasty twist in this now grimly familiar tale is the mountain of debt and giant pension deficit this public services contractor leaves in the wreckage of its collapse– with an accompanying massive hit to the public purse.

“It must also be time now for the auditors who cosily signed off this disaster-in-the-making as a ‘going concern’ less than a year ago to begin to account for themselves.”

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy (BEIS) Committee said: “In the wake of the BHS scandal, Carillion has the hallmarks of another corporate governance failure with directors asleep at the wheel while the business went off a cliff, in this case leaving jobs, pensions and public services under threat and a host of suppliers out of pocket.

“How is it that so many warning signs were ignored by the company and the Government? What were the Carillion board and senior management doing to address the spiralling problems at the company? Why are the regulatory bodies stepping in only after Carillion’s collapse?

“As a Committee we will also want to explore the executive pay arrangements at Carillion, the potential cost to the taxpayer of the insolvency, and the role of both directors and non-executive directors in the company’s collapse.”

The committees have called the following witnesses for two initial evidence sessions:

On Tuesday 30 January

The Financial Reporting Council

The Insolvency Service

Chris Martin, Managing Director, Independent Trustee Services Ltd (Member of Carillion DB Pension Scheme Trustee Board since 8 January)

Robin Ellison, Chair of Trustees of Carillion DB Pension Scheme

On Tuesday 6 February

Richard Howson, Chief Executive, December 2012 – July 2017

Phillip Green, Chairman, May 2014 – Monday 15 January 2018

Richard Adam, Finance Director, April 2007 – December 2016

Zafar Khan, Finance Director, January 2017 – September 2017

Keith Cochrane, Interim Chief Executive, July 2017 – Monday 15 January 2018

Emma Mercer, Finance Director September, 2017 – Monday 15 January 2018

Labour calls for Mundell’s head

Scottish Secretary David Mundell has come under fire after Keith Cochrane stepped aside as an adviser to the minister in the wake of the Carillion collapse.

Shadow Scottish Secretary Lesley Laird said Mr Mundell’s “lack of judgment” in appointing the interim chief executive of Carillion as an adviser “is matched only by his failure to act decisively since reports of the relationship emerged.”

Ms Laird said that rather than remove Mr Cochrane as an adviser, “he has waited for his position to become untenable and for him to voluntarily stand aside.”

She said: “He has lost his grip on his department, his advisers and cannot even keep his band of Scottish Tory MPs content. Perhaps it is time for him to follow Mr Cochrane out of the door.”

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