Carillion was in serious financial difficulty by the middle of 2016 but directors were “placating the City” by failing to disclose major problems, according to a former executive at the collapsed government contractor.
Speaking on condition of anonymity, an executive who spent more than 20 years with the company lifted the lid on a corporate culture in which “nobody wanted to give bad news”.
“Anyone in the business knew there were major problems, even middle managers,” the former Carillion executive told the Guardian.
“The supply chain wasn’t being paid, money was getting transferred [between different parts of the group] to pay salaries, loans were coming in from the UK to the whole of the Middle East. By mid-2016 we were already seeing these problems.”
He added: “The philosophy was that it would be all right on the night and it got to a point where people wouldn’t listen to you if you weren’t on message.”
In testimony before MPs on two select committees, former chief executive Richard Howson has said Carillion’s problems crystallised after KPMG reviewed its contracts in spring 2017, leading to writedowns of £845m and a profit warning that began the company’s death spiral.
But the former Carillion executive, who has spent most of his career with the company, said major problems were apparent long before that but were kept “on the back burner”.
“For them [directors] to say it all happened in April and May 2017 when the world changed … it’s absolute nonsense.”
“[The writedowns] were all lurking and developing, they had even crystallised, but nobody was accepting it. There was no cash.”
The Financial Conduct Authority, the City watchdog, is already investigating the “timeliness and content” of Carillion’s stock market announcements between 7 December 2016 and 10 July 2017, a period that includes its annual results for 2016.
The source said he believed that these results painted an unrealistic picture of the company’s financial health.
“All we were doing was placating the City all the time, saying it was all OK, keeping the share price up.”
“The hedge funds didn’t believe it, they were all over it,” he added, a reference to major bets taken by investment firms that were short-selling Carillion, effectively placing bets that its share price would fall.
He said he considered becoming a whistleblower by flagging up his concerns with a non-executive member of the board but was concerned at what result this might have.
The source also disputed Howson’s argument that a major factor in Carillion’s demise was its inability to collect a £200m debt owed by Qatari client Msheireb for work redeveloping the country’s capital, Doha, ahead of the World Cup 2022.
Howson has previously said he “felt like a bailiff” when trying to collect the debt.
“The reality is that there was a big dispute and these things happen,” said the source. “Just because you fly out and ask for money, doesn’t mean you’re entitled to it. You can only be a bailiff if the money is owed, not if you feel it’s owed.”
Msheireb, a property company which has already denied allegations by former Carillion directors, said Howson’s claims were “misleading and inaccurate”, adding that they had provided supporting evidence to the business select committee.
“Msheireb Properties is deeply saddened that Carillion collapsed affecting so many employees, pensioners, subcontractors and projects in the United Kingdom and around the world,” it said.
“However, the attempt by current and former executives of Carillion to pass the blame to others, including Msheireb Properties, was deeply troubling and inaccurate.”
The company added that it was “currently exploring all legal options”.