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Directors facing more questions

Scots investor in legal threat against Carillion

Keith Cochrane

Keith Cochrane: ‘limited and vague responses’


A Scottish investment firm, which suffered heavy paper losses in Carillion’s collapse, considered suing the company and wants its management investigated, it has been revealed today.

Kiltearn Partners, based in Edinburgh, was among those that claimed they were misled by the construction company over its financial position and lost clients’ money when it collapsed.

Frank Field, chairman of the Commons Work & Pensions Committee, took another swipe at the top management at Carillion “and their friends at KPMG [auditor]”.

He said feedback from a number of institutional investors, including Standard Life Aberdeen, showed that while the directors were claiming “all was sunny”, the investors were “fleeing for the hills”.

At the end of January the committees wrote to major shareholders in Carillion with questions on their interaction with the company and the timing and motivation of their share sales.

The Committees are today publishing their responses, which show a variety of different perceptions about Carillion among its institutional investors, and very different levels of engagement with the board.

Kiltearn, which held 10% of Carillion’s shares in February & May last year, was set up in 2011 with the backing of Silchester International Investors, a hedge fund that specialises in long-only investments and does not short shares.

It told the joint committees of MPs that “there are clear grounds for an investigation into whether Carillion’s management knew, or should have known, about the need for a £845 million provision due to receivables on its construction business earlier than July 2017″.

The investment firm said that if Carillion had not gone into liquidation, it would have “considered participation in civil legal action against Carillion with a view to recovering a proportion of its clients’ crystalised losses.”



At Carillion’s AGM in May 2017, Kiltearn voted all its shares against the remuneration report because of “concerns about [CEO] Mr [Richard] Howson’s level of remuneration relative to the company’s level of net income.”

The firm states that “the 845 million provision effectively destroyed Carillion’s capital base” that the company had become “impossible to value as it was not clear what future cash flows would be as there was no concrete information on critical factors”.

Further, that Carillion’s published information, including historic annual reports, could “no longer be considered reliable and consequently no effective assessment of its finances could be made.”

Kiltearn began selling shares on 3 August. At a meeting with Carillion on 13 October, it states former interim CEO Keith Cochrane could only provide “limited and vague” responses to “fundamental” questions and consequently Kiltearn sold all its shares by 4 January 2018.




Standard Life Aberdeen began selling its holding in December 2015 due to concerns about financial management, strategy and corporate governance which had been raised with the board in regular meetings from then until the company sold up completely in July 2017. 

It “felt that the 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. The board showed no inclination to drive the management to change.”

Letko Brosseau, a Canadian company made four attempts to arrange a meeting with CFO Zafar Khan. The company saw no reason to divest based on the 2016 accounts and was initially prepared to back Carillion following the first profit warning, saying it was “even prepared to consider a further injection of capital”.

The firm finally lost faith with the November 2017 profit warning and breach of covenants and the “probability of a recovery was unlikely”, and sold all shares within a few days. 

Brewin Dolphin gradually reduced its shareholding during 2017, which accelerated after the 10 July profit warning.

UBS held a small proportion of Carillion shares (0.1%) by July 2017 primarily for hedging purposes. In view of small proportion of shares, it did not engage with the board at all during the period in question.

Mr Field said: “There is a disconnect here. On one hand, the Carillion directors told us all was sunny until a bolt of Qatari lightning hit them out of the blue.

“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.




“We will be taking evidence from the auditors and the investors – as well as demanding more company papers – to get to the bottom of who knew what and, most importantly, when.”

Rachel Reeves, chairman of the Business, Energy and Industrial Strategy (BEIS) Committee, said: “Investors spotted that Carillion was heading for disaster and fled.

“The company had unsustainably high levels of debt, weak cash-generation and was saddled with a widening pensions deficit.

“It’s a tragedy for those who have lost their jobs and the suppliers left struggling for survival that Carillion directors ignored these issues. 

“Carillion’s annual reports were worthless as a guide to the true financial health of the company. The fact that it was impossible to get a true sense of the assets, liabilities and cash generation of the business raises serious questions about Carillion’s corporate governance.

“KMPG will have to explain why they signed-off on accounts which appeared to bear so little relation to reality.”



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