'Stain on UK's corporate reputation'

Unite welcomed news today (January 14) that the government has launched a legal bid to bar eight former directors of the collapsed construction giant Carillion from holding future UK director company posts for more than a decade.

But the union warned that this action should have been taken far earlier, and that further legal action should be pursued so that directors and others involved answer for their crimes in court.

The Insolvency Service’s announcement today (January 14) confirming that business secretary Kwasi Kwarteng initiated proceedings to bar ex-Carillion bosses from holding senior boardroom positions comes on the eve of the third anniversary of Carillion’s collapse.

On January 15, 2018, news broke that construction giant and outsourcing firm Carillion had collapsed into administration under a debt pile of £7bn, with only £29m in the bank.

About 3,000 direct staff were made redundant with many more in the supply chain losing their jobs; construction companies that relied on business with Carillion went bust as well.

It is estimated that in total, nearly 30,000 people were made jobless because of Carillion’s collapse – the total cost to the taxpayer of one of the UK’s biggest corporate failures is estimated to have exceeded £150m, with £65m being paid out by taxpayers for redundancies alone.

Several public projects helmed by Carillion, including hospitals, had been put on hold and are now years behind schedule. The new Royal Liverpool Hospital was supposed to open in 2017, but after Carillion’s collapse, it will not be operational until 2022 at the very earliest. The delays are felt acutely by the city of Liverpool, where hospitals now are under massive strain amid the Covid-19 pandemic.

The Midland Metropolitan Hospital in Sandwell was likewise due to open years earlier, in 2018, but now will not be up and running, like the Liverpool hospital, until 2022. Sandwell and west Birmingham hospital admissions have soared in recent days as the pandemic rages on.  

Despite the trail of destruction left by Carillion’s top bosses – whose mismanagement led to the company’s demise – no one has been held accountable.

In November last year, the Financial Conduct Authority (FCA) issued a warning notice to former Carillion directors that outlined breaches of securities rules in market announcements, although it did not name individuals. The FCA concluded that Carillion, including some of its executive directors, “recklessly misled” investors over the fragile nature of the company’s finances when it was teetering on the brink of going bust.

“They made misleadingly positive statements about Carillion’s financial performance generally and in relation to its UK construction business in particular,” the FCA said in a statement. “[The statements] did not reflect significant deteriorations in the expected financial performance of that business and the increasing financial risks associated with it.”

Incredibly, however, the FCA said it would only seek ‘public censure’ of those involved and would not be seeking to impose financial penalties – a move that drew widespread criticism from Unite and others.

Now, new business secretary Kwasi Kwarteng, who was appointed to succeed his predecessor Alok Sharma last week, has initiated company director disqualification proceedings. If the legal bid is successful, eight former Carillion directors could be disqualified from senior boardroom positions in UK companies for up to 15 years.

Those named in court documents who face company director disqualification include Philip Green, who served as chairman from 2014 until the firm’s liquidation, as well as ex-CEO Richard Howson, who served as Carillion’s chief executive from 2011 to 2017.

Howson’s successor, Richard Cochrane, who was installed as interim chief executive in the last few months before Carillion went bust, is also named in court documents. After Carillion’s collapse, Cochrane went on to become CEO of Schenck Process since 2019, a position he still holds.

Two ex-finance executives, Zafar Khan and Richard Adam, and three boardroom non-executives, Alison Horner, Andrew Dougal and Ceri Powell, also face the threat of being banned from senior company positions.

Commenting, Unite assistant general secretary Gail Cartmail said, “Today’s news that The Insolvency Service is starting legal moves to bar the eight Carillion directors from being UK company directors is very welcome – but such action should have come much earlier.

“Carillion’s collapse was not a victimless white-collar crime as thousands of workers lost their jobs,” she added. “If executives and directors had reported honestly on Carillion’s financial predicament, many of those job losses could have been avoided.

“We would like to see those responsible for the Carillion debacle to be charged and appear in court. Without a doubt Carillion had been trading while insolvent for some time before its collapse.

“The events behind the Carillion collapse demonstrated everything that is wrong with corporate law in the UK; a failure to act before a company collapses and very slow investigations,” Cartmail continued.

“New business secretary Kwasi Kwarteng has injected a much-needed impetus into the Carillion affair, but needs to cast his net wider to clean up the culture of ‘bandit capitalism’ across the UK corporate environment with a strong system of regulation and enforcement.

“Only by taking much more robust action can shareholders, employees, customers and, more widely, the general public be reassured that collapses such as Carillion won’t be repeated. It was a stain on the UK’s corporate reputation.”

In its comprehensive report into Carillion’s collapse, Unite outlined over 20 recommendations for reforms needed to prevent future corporate collapses. You can read the report, Ending Bandit Capitalism, here.

By Hajera Blagg