The UK’s financial regulator has said it is planning to publicly censure former directors of Carillion rather than impose financial penalties, almost three years after the government contractor collapsed under £7bn of liabilities and left taxpayers to pick up the pieces.
On Friday, the Financial Conduct Authority announced that it had issued warning notices to the company itself and to “certain previous executive directors” over a series of breaches of financial rules before the business failed.
These include giving “false or misleading signals as to the value of its shares”, “failing to take reasonable care to ensure that its announcements were not misleading, false or deceptive”, and “failing to take reasonable steps to establish and maintain adequate procedures, systems and controls”.
Despite these findings, the FCA said “a public censure is proposed, not a financial penalty”.
The regulator did not name the directors it had warned because the case is ongoing. It also stressed that a warning notice is not a final decision and individuals may appeal against any later decision to its upper tribunal.
Prem Sikka, professor of accounting at the University of Sheffield and a member of the House of Lords, said this was “evidence that the FCA is not fit to be a regulator”.
He added: “There are 30,000 small and medium-sized enterprises who have lost money, thousands of employees who lost jobs and pension rights and the regulator has taken two years to do little or virtually nothing. This is not going to act as a deterrent or encourage responsible behaviour.”
Carillion, which had 43,000 employees worldwide including 19,000 in the UK, was liquidated in January 2018 with just £29m in cash and £7bn in liabilities, leaving the UK government to step in to ensure delivery of key services including school meals and cleaning of hospitals and prisons.
MPs have demanded that Richard Adam, a former finance director, Richard Howson, a former chief executive, and Philip Green, former chairman, be held to account for their role in the biggest UK corporate failure in recent years. In addition, the Financial Reporting Council is currently investigating the conduct of Mr Adam as well as another former Carillion finance director, Zafar Khan.
During their tenure, the company ran up debts and sold assets so that it could continue paying dividends to shareholders. It paid performance-related bonuses to executives just months before its collapse.
According to the FCA, the company “made misleadingly positive statements”, particularly in relation to its UK construction business, which did not reflect “significant deteriorations” in its expected performance.
Although the directors “were each aware” of this problem, and the increasing financial risks the business faced, the regulator found that they failed to inform the company’s board or audit committee, or check the accuracy of its public announcements — despite being responsible for them. The FCA concluded that, in doing so, they “acted recklessly”.
But campaigners criticised the FCA proposal to censure rather than fine those responsible. Cat Hobbs, director of anti-privatisation group We Own It, said: “This is yet another case of senior executives being let off the hook while their former employees and pensioners suffer the consequences. The total scandal of Carillion’s collapse should have been a turning point. Instead, the government is continuing to outsource the pandemic response to companies like Carillion when services would be better run in-house.”
However, Nick Bayley, a former FCA regulator who is now head of UK regulatory consulting at Duff & Phelps, said a censure would have an impact. “The headline market abuse offence, of being knowingly concerned in recklessly misleading the market, is one that — if proven — will have serious reputational and financial consequences for the individuals involved,” he noted.
Tom Sasse, of the Institute for Government, said it showed the “checks and balances on companies like Carillion remain much too weak and too slow”.
He added: “The government promised reform but we are yet to see it follow through, including with the primary legislation needed to strengthen audit.”
— to www.ft.com