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Former Carillion directors were 'asleep at the wheel', claims MP Former Carillion directors branded 'delusional' at MPs' Q&A
(35 minutes later)
Commons committees question executives on government contractor’s collapse Executive pass up chance to repay bonuses during committees’ questions• Highlights from the Carillion directors’ evidence to MPs
• Highlights from the Carillion directors’ evidence to MPs
Rob DaviesRob Davies
Tue 6 Feb 2018 13.02 GMT Tue 6 Feb 2018 16.54 GMT
First published on Tue 6 Feb 2018 12.09 GMTFirst published on Tue 6 Feb 2018 12.09 GMT
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Former directors of Carillion have been accused of being “asleep at the wheel” in the years leading up to the government contractor’s collapse, as they blamed factors including the calling of a general election, Brexit and non-payment of bills by Qatar. Former directors of Carillion turned down the chance to hand back their bonuses voluntarily, as MPs branded them “delusional characters” willing to blame everyone but themselves for the government contractor’s failure.
Seven former Carillion directors were giving evidence to MPs as part of a joint inquiry by two select committees into the firm’s liquidation earlier this month. Seven former Carillion directors gave evidence to MPs at the start of a joint inquiry by two select committees into the firm’s liquidation earlier this month.
Carillion’s demise put tens of thousands of jobs and supplier companies at risk, left hundreds of millions of pounds of public contracts unfinished, and is set to saddle the government’s pensions lifeboat with £800m of liabilities. The collapse put tens of thousands of jobs and supplier companies at risk, left hundreds of millions of pounds of public contracts unfinished and is set to saddle the government’s pensions lifeboat with an estimated £800m of liabilities.
In the first session of the inquiry, work and pensions committee chair Frank Field accused former finance director Zafar Khan of being “asleep at the wheel” as the company’s debts built up, its pension deficit ballooned and its cashflow dried up. During two lengthy sessions before MPs from the business select committee and counterparts on the work and pensions committee, former Carillion directors:
Khan denied the claim. Denied being “asleep at the wheel” of the company
Directors were also accused of prioritising the payment of dividends to investors over paying into a pension scheme whose deficit is estimated at around £990m. Denied prioritising dividends over pension payments
Keith Cochrane, a former non-executive director who was appointed interim chief executive after a huge profit warning in July 2017, said: “Through the lens of today, if we had suspended dividends and not paid that £50m payment in 2017, would that have made a difference, possibly.” Passed up the chance to offer to give bonuses back
Khan said: “It would have been helpful not to pay the final dividend. But at the same time we had a budget that said we could service dividend, put more money into the pension scheme and reduce net debt.” Blamed Brexit, Qatar, the 2017 general election and each other
Cochrane denied the company put shareholders’ financial interests above those of its 27,000 pension scheme members. Admitted failing to question the company’s business model
But he admitted that directors could have done more to flag up the company’s growing problems. MPs repeatedly accused Carillion directors of prioritising dividend payments over whittling down debts and plugging a pension scheme deficit estimated at £990m.
Keith Cochrane, a former non-executive director who replaced Richard Howson as chief executive after a huge profit warning in July 2017, said: “Through the lens of today, if we had suspended dividends [...] would that have made a difference, possibly.”
But he denied the company put the financial interests of shareholders above those of its 27,000 pension scheme members.
Howson said the company at one point raised its dividend “to show confidence in the future” of the business.
All of the former directors apologised for their role in Carillion’s demise, saying the company’s debts and pension deficit became unsustainable as conditions deteriorated rapidly in early 2017.
They blamed a phalanx of setbacks including non-payment of bills by Qatar, Brexit, the snap election in 2017, interest rates and problems building hospitals in Liverpool and Birmingham.
In a joint statement issued after the hearing, committee chairs Frank Field and Rachel Reeves said: “This morning a series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong.
“We heard variously that this was the fault of the Bank of England, the foreign exchange markets, advisers, Brexit, the snap election, investors, suppliers, the construction industry, the business culture of the Middle East and professional designers of concrete beams.
“Everything we have seen points the fingers in another direction – to the people who built a giant company on sand in a desperate dash for cash.”
The committees also published a recovery plan that Carillion directors drew up in the days before its liquidation, that admitted it had operated with “an overly short-term focus, weak operational risk management and too many distractions outside of our ‘core’”.
During the evidence session, former finance director Zafar Khan denied a claim by Reeves that directors were “asleep at the wheel” as the company’s debts spiralled to more than £1bn.
He added that the company’s ability to secure new contracts “drifted” due to Brexit and the calling of a general election in 2017.
His successor Emma Mercer said Khan and other directors had taken an “aggressive tone” in the way they valued contracts that later underperformed.
Howson pointed to a £200m bill owed by Qatar, which remained unpaid for 18 months, for work to redevelop parts of the capital city, Doha, for the 2022 World Cup.
Howson said he repeatedly tried to extract payment from Qatar during monthly visits to the country, saying: “I felt like a bailiff.”
He also pointed to problems with major contracts including the Royal Liverpool University hospital, where cracked beams led to delays, the Midland Metropolitan hospital and the Aberdeen bypass.
The underperforming contracts were among those that starved the debt-laden company of cash and forced it to take an £845m financial hit six months before its failure.
At the end of the session, business committee chair Reeves invited the former directors to pledge to give back their bonuses but none took the opportunity.
“All of you sitting here received multimillion payments from Carillion,” she said. “You say how sad and disappointed you are but what actions do you take?
“It’s just words. The money’s in the bank. Why don’t you give some money back and try to put right some of this wrong?”
Howson, who received cash-plus-shares bonuses worth nearly £1m in 2016, said he would do so if required by the government’s official receiver, adding that the portion paid in shares was already worthless.
Earlier, Cochrane said that before he became chief executive, he and other directors could have done more to flag up the growing problems.
He said: “Clearly with the benefit of hindsight, should the board have been asking further, more probing questions, perhaps.”He said: “Clearly with the benefit of hindsight, should the board have been asking further, more probing questions, perhaps.”
“Clearly the business did have issues. Do I wish we’d done something about it sooner, absolutely. At the time, all the decisions I took were seeking to do the best thing for the business.” Asked about the firm’s last-ditch bid for survival in January, Cochrane said directors asked the government for a £160m cash injection but were refused.
Three former directors, giving evidence in the first of two sessions on Tuesday morning, blamed a variety of factors for the company’s demise. “We believed a longer-term solution was possible,” he said. “That solution would have been the best possible outcome for [the] pension fund, customers, suppliers and employees.”
Khan said the ability to secure new contracts to replace lucrative projects that were coming to an end “drifted” due to Brexit and the calling of a general election, which “had an impact on our ability to replace contracts.”
His successor Emma Mercer pointed to a £200m contract to help prepare Qatar for the 2022 World Cup, which remained unpaid for 18 months.
Cochrane said former chief executive Richard Howson had believed at a board meeting in April 2017 that Qatar was going to pay up.
“Six weeks later the world had changed and it wasn’t paid.”
MPs also ridiculed Khan for a slip in which he said he and his colleagues had brought the company’s debt down.
He eventually admitted: “The debt increased through 2017. We were unable to get the debt down. It wasn’t because we were oblivious.”
Asked about the final days of Carillion, which involved talks with its banks over a potential rescue, Cochrane said the company had asked the government, from which it derived 45% of its revenues, for a cash injection.
“Our final proposition at 7pm on the Saturday evening was for staggered support. In total over four months, it was for £160m.”
“We believed a longer-term solution was possible,” he said.
“That solution would have been the best possible outcome for [the] pension fund, customers, suppliers and employees.”
CarillionCarillion
Construction industryConstruction industry
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