The financial reporting watchdog has revealed that it issued a warning notice to Carillion plc (in liquidation since 15th January 2018) and certain former executive directors, proposing to issue the company with a public censure.
The Financial Conduct Authority (FCA) warning notice statement (WNS) said: “In relation to Carillion a public censure is proposed, not a financial penalty.”
A spokesperson later clarified that “the proposed censure set out in the WNS is only in respect of Carillion plc”, adding: “We cannot comment on the proposed sanctions against the individuals.”
The FCA found that:
“Carillion’s announcement on 7 December 2016, 1 March 2017 and 3 May 2017 were misleading and did not accurately or fully disclose the true financial performance of Carillion. They made misleadingly positive statements about Carillion’s financial performance generally and in relation to its UK construction business in particular, which did not reflect significant deteriorations in the expected financial performance of that business and the increasing financial risks associated with it.”
“Carillion’s systems, procedures and controls were not sufficiently robust to ensure that contract accounting judgments made in its UK construction business were appropriately made, recorded and reported internally to the board and audit committee.
“At material times, the relevant executive directors were each aware of the deteriorating expected financial performance within the UK construction business and the increasing financial risks associated with it. They failed to ensure that those Carillion announcements for which they were responsible accurately and fully reflected these matters. Despite their awareness of these deteriorations and increasing risks, they also failed to make the board and the audit committee aware of them, resulting in lack of proper oversight.
“The FCA considers that Carillion and the relevant executive directors acted recklessly in relation to the above matters.”
The Unite union, which represents many former employees of Carillion, was not impressed by the idea of a censure. Assistant general secretary Gail Cartmail said: “It is astonishing that nearly three years after Carillion’s collapse no one has yet been charged let alone convicted over their actions.
“Without a doubt Carillion had been trading while insolvent for some time before its collapse. This was not a victimless white collar crime, thousands of workers lost their jobs. If executives and directors had reported honestly on Carillion’s financial predicament, many of those job losses could have been avoided.
“This case demonstrates everything that is wrong with corporate law in the UK, a failure to act before a company collapses, very slow investigations following a collapse and then if action is taken it is only a slap on the wrist.
“Public censure is not a sufficient punishment, the guilty should be going to prison.
“The government needs to get its head out of the sand and introduce legislation which will end this form of bandit capitalism once and for all.”
Architect Tim Drewitt, a past vice president of the Royal Institute of British Architects, expressed a similar opinion. "As an architect of 50 years practice, I think the FCA’s failure to prosecute the directors of Carillion is a scandal," he said. "The directors should serve prison sentences for the damage that they have done to the lives of so many of their workforce and those of subcontractors... Our form of capitalism is truly corrupt when it allows the directors of Carillion to go free."
The FCA stressed that its warning notice was not the final decision of the FCA. The firm and the individuals have the right to make representations to the Regulatory Decisions Committee (RDC) which will then decide on the appropriate action. There is then the right to appeal to the Upper Tribunal which would reach an independent decision on the appropriate action for the FCA to take, if any. If either the RDC or the Upper Tribunal decides that no further action should be taken against a party, the FCA will publish a notice of discontinuance provided it has the firm’s or the individual’s consent.