Carillion crisis leaves 30,000 small firms owed money

London Briefing: State, KPMG, chiefs Richard Howson and Keith Cochrane under fire

A sign on a gate to the Carillion building site at the Royal Liverpool University Hospital in the wake of the firm’s implosion. Photograph: Paul Ellis/AFP/Getty

A sign on a gate to the Carillion building site at the Royal Liverpool University Hospital in the wake of the firm’s implosion. Photograph: Paul Ellis/AFP/Getty

 

Why would the government award contracts worth almost £2 billion to a company that had already, very publicly, admitted it was in trouble?

That’s one of the most perplexing questions to emerge from the deepening Carillion crisis – and nobody wants to know the answer more than Andy Bradley, boss of Cambridge-based horticultural services company Flora-tec.

Bradley has just been forced to make 10 of his 90 employees redundant, as the prospect of Carillion paying even a penny of the £800,000 it owes his firm looks remote indeed.

The businessman knew of Carillion’s difficulties – it had issued three profit warnings to the City since July – but was reassured that the government continued to dole out substantial contracts to the construction company. This included a £1.4 billion contract to a Carillion joint venture company to work on the HS2 high-speed rail link, awarded just a week after the first profit alert.

Now the Cambridge businessman fears for the future of his company and says he feels “betrayed” by the government, which he simply assumed had done its due diligence.

Flora-tec, whose employees gritted roads and cleared snow at schools and hospitals serviced by Carillion, is just one of up to 30,000 small firms owed money by the collapsed construction and services company. Many will not survive, putting thousands more jobs at risk, along with Carillion’s near-20,000 UK workforce. Globally, the company employs more than 40,000.

Corporate collapse

It’s not just the government that’s under scrutiny – almost anyone who’s had anything to do with Carillion is coming under fire as contagion from one of Britain’s biggest-ever corporate collapses spreads.

The group’s auditors, KPMG, will be called on to explain themselves, as will its remuneration committee, which was still handing out bonuses to executives even as the company’s financial problems mounted.

Much of the anger is being directed at Carillion’s former chief executive, Richard Howson, who is still being paid by the company even though he quit last year. He was rewarded with a £1.5 million pay package in 2016 – including a cash bonus of £254,000 – and will stay on the company payroll at the rate of £660,00 a year (plus £28,000 in benefits) until October.

His replacement, Keith Cochrane, who had been due to depart this month, will also continue to draw his £750,000 salary for another six months.

Even the City faithful have been shocked by Carillion’s boardroom antics – the Institute of Directors blasted the financial arrangements as “highly inappropriate”.

The IoD was particularly incensed by Carillion’s move to relax claw-back clauses for directors, absolving them any requirement to return bonuses if the company went bust. Under the new rules, claw back can only be made in cases of gross misconduct or the mis-statement of results.

Investigation to widen

Those are matters the authorities will be looking at closely in the weeks and months ahead. The business secretary Greg Clark has announced that the investigation into the conduct of Carillion directors will now be fast-tracked by the Insolvency Service and its scope broadened.

Investigators will look not only at the actions of those who were in charge when the company went under, but also those who ran the business before it collapsed. That puts Howson, who quit after the first profits warning in July, firmly under the spotlight.

Announcing the wide-ranging probe, business secretary Greg Clark said that any evidence of misconduct “will be taken very seriously”.

As the row over boardroom pay gathered pace – and in true fat-cat style – pictures emerged of Howson enjoying a luxurious holiday last year in the Alpine resort of Chatel, France.

Taken just weeks after he quit the beleaguered construction firm, cushioned by a lucrative pay package, the former Carillion boss is pictured relaxed and smiling at the resort, where the Howson family is understood to own chalet.

Described as “simple yet luxurious”, the chalet boasts a terrace and hot tub from which to enjoy the mountain views. Back home in the UK, the views are doubtless equally impressive from the Howsons’ large farmhouse in the Yorkshire Dales.

Neither he nor any of the other Carillion directors were in sight on Tuesday as the full extent of the company’s financial difficulties was revealed. When it collapsed into liquidation early on Monday morning, the company had just £29 million in cash, but owed almost £1.3 billion to its banks.

It has also emerged that because of its dire financial position, neither PwC nor EY were prepared to act as administrators. When even the accountants fear they won’t be paid, you know a company really is beyond saving.

Fiona Walsh is business editor of theguardian.com

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