Carillion investors ‘fled for the hills’ as disaster loomed

● MPS publish a response of leading shareholders to timing of sell-offs

Institutional investors “spot‑ ted that Carillion was heading for disaster and fled”, a new report out today by leading MPS claims.

The business committee and the work and pensions com‑ mittee wrote to major share‑ holders in the collapsed serv‑ ices and construction giant at the end of last month to ask about the “timing and motives” for their selloffs.

The MPS today publish their responses, which show vary‑ ing perceptions about Caril‑ lion among its institutional investors.

Rachel Reeves MP, chair of the business committee, said: “Investors spotted that Caril‑ lion was heading for disaster and fled. The company had unsustainably high levels of debt, weak cash‑generation and was saddled with a wid‑ ening pensions deficit.

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

Reeves added that Carillion’s annual reports were “worth‑ less” as a guide to its true finan‑ cial health. She said: “The fact that it was impossible to get a true sense of the assets, liabili‑ ties and cash generation of the business raises serious ques‑ tions about Carillion’s corpo‑ rate governance.

“KMPG (the group’s audi‑ tors) will have to explain why they signed off on accounts which appeared to bear so lit‑ tle relation to reality”

Frank Field MP, chair of the work and pensions commit‑ tee, said the questioning of investors had shown a “dis‑ connect” between a self‑sat‑ isfied Carillion management while “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 demand‑ ing more company papers – to get to the bottom of who knew what and, most importantly, when.”

Today’s report said Kiltearn Partners, which held 10 per cent of Carillion’s shares in February and May last year, had considered suing the com‑ pany before it collapsed.

Kiltearn’s response to the MPS says it believes “there are clear grounds for an investi‑ gation into whether Carillion’s management knew, or should have known, about the need for a £845 million provision due to receivables on its con‑ struction business earlier than July 2017”.

Kiltearn says if the business had not gone into liquidation, it would have “considered par‑ ticipation in civil legal action against Carillion with a view to recovering a proportion of its clients’ crystallised losses”.

Standard Life Aberdeen said it began selling shares in December 2015 due to con‑ cerns about financial man‑ agement, strategy and cor‑ porate governance which it “raised with the board in regular meetings” from then until it sold up completely in July 2017”.

Brewin Dolphin gradually reduced its shareholding dur‑ ing 2017, “which accelerated after the 10 July profit warn‑ ing”.