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Major Carillion investor considered suing company

carillion 2

A major Carillion shareholder was considering suing the failed construction giant over a shock profit warning last July at the time of the firm’s collapse, it has emerged.

Investment firm Kiltearn Partners told the parliamentary inquiry into Carillion’s collapse that it would have “considered participation in civil legal action against Carillion with a view to recovering a proportion of its clients’ crystallised losses”, if the company had not gone into liquidation in January this year.

The Edinburgh-based investment manager said there are “clear grounds for an investigation” into whether Carillion’s management knew about the need for an £845M provision earlier than July last year.

The firm, which held 10% of Carillion’s shares in February and May last year, voted against approving Carillion’s Remuneration Report in 2017, citing “excessive” payments to then chief executive officer Richard Howson.

A letter from Kiltearn chief executive Murdoch Murchison to the chairs of the Commons’ select committee investigating the failed construction giant says that the “£845M provision effectively destroyed Carillion’s capital base” and that the company had become “impossible to value as it was not clear what future cash flows would be as there was no concrete information on critical factors”.

Carillion’s published information could not be considered reliable after the July profit warning and therefore no assessment of its finances could be made, the letter says.

Another shareholder, Standard Life Aberdeen, told the joint Business, Energy and Industrial Strategy and Working and Pensions committee inquiry that it started selling its shares in December 2015 because of concerns about financial management, strategy and corporate governance, and had sold up completely by July last year.

It said: “Management was not giving sufficient weight to the probability that trading may deteriorate further or to the downside risk from this scenario given the high level of debt. The board showed no inclination to drive the management to change.”

Business, Energy and Industrial Strategy committee chairwoman Rachel Reeves said: “The fact that it was impossible to get a true sense of the assets, liabilities and cash generation of the business raises serious questions about Carillion’s corporate governance. KMPG will have to explain why they signed-off on accounts which appeared to bear so little relation to reality.”

Work and pensions committee chairman Frank Field added: “We will be taking evidence from the auditors and the investors - as well as demanding more company papers - to get to the bottom of who knew what and, most importantly, when.”

Representatives from KPMG, Deloitte and the Pensions Regulator will give evidence to the inquiry on Thursday. 

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