Carillion Lenders Had Months-Long Warning Of Collapse

The lenders of government contractor Carillion knew for months that the company’s financial downfall was coming, according to reports from The Guardian on Saturday (March 3).

U.K. policymakers recently published a report in an ongoing investigation into Carillion’s collapse, which has led to millions of dollars in supplier payments being stuck in limbo. The company’s liquidation, announced in January, sent shockwaves through the firm’s supply chain and sparked questions about the government’s ongoing relationship with the contractor.

MPs pointed to Carillion’s “gross failings of corporate governance and accounting” in their preliminary report, which found that its lenders – which include RBS, Barclays, HSB, Santander and Lloyds – commissioned FTI Consulting to look at Carillion’s books last September before agreeing to provide nearly $200 million to the company.

According to reports, analysis of Carillion’s finances led to a slew of concerns for the lenders. Carillion also reportedly hoped to secure an additional $497 million from the banks to avoid a financial collapse.

In its analysis, FTI found “overstatement” of contract profits linked to projects in the U.K., Canada and the Middle East, and highlighted major losses on those contracts. The advisory group warned the lenders that Carillion was headed for a financial crisis. According to FTI, the company’s accounting practices “enhance[d] the reported profitability and net debt position.”

Analysis said accounting strategies included deferring payments and accepting short-term loans.

“The group has been poorly managed for a considerable period, during which time significant underperformance and contract issues have been masked by aggressive accounting,” FTI said in its report, adding that Carillion accepted “inappropriate” terms on large contracts that it failed to adequately review in order to accept up-front payments.

“There are many losers from the Carillion calamity: employees, pensioners, suppliers and the well-run businesses that pay the PPF levy,” said Frank Field, chair of the Work and Pensions Committee. “Many of those face an anxious wait-and-see to the consequences of the gross failings of corporate governance and accounting for them, their businesses and their families.”