Major investors on the brink of suing Carillion

Investors in collapsed construction group, Carillion were on the brink of suing the Wolverhampton company for the loss of its clients’ funds, it has emerged.

Had the group not been liquidated, Kiltearn Partners – which held 10% of Carillion’s shares in February and May 2017 – said it would have considered taking civil legal action against the company and its management.

The revelation came as Kiltearn submitted evidence to the joint Work and Pensions and Treasury select committee inquiry into the Carillion collapse.

In a letter submitted to the inquiry, Kiltearn stated it believed “there are clear grounds for an investigation into whether Carillion’s management knew, or should have known, about the need for a £845m provision due to receivables on its construction business earlier than July 2017” and that if Carillion had not gone into liquidation, it would have “considered participation in civil legal action against Carillion with a view to recovering a proportion of its clients’ crystalised losses.”

At the Carillion AGM in May 2017, Kiltearn voted all its shares against the Remuneration Report because of “concerns about (Richard) Howson’s (former Carillion chief executive) level of remuneration relative to the company’s level of net income”.

Kiltearn also state that “the £845m provision effectively destroyed Carillion’s capital base”, 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” and further, that Carillion’s published information, including historic annual reports, could “no longer be considered reliable and consequently no effective assessment of its finances could be made.”

Fearing what might happen, Kiltearn began selling shares on August 3. At a meeting with Carillion on October 13, it said former Carillion interim chief executive Keith Cochrane could only provide “limited and vague” responses to “fundamental” questions and consequently Kiltearn sold all shares by January 4, 2018.

Kiltearn was by no means the only large investor to have expressed concern at what was happening at Carillion.

Standard Life Aberdeen began a process of divestment in December 2015 due to concerns about financial management, strategy and corporate governance which it raised with the board in regular meetings from then until they sold up completely in July 2017.

In a submission to the inquiry it said it felt that the Carillion management was not giving sufficient weight to the probability that trading would deteriorate further.

“The board showed no inclination to drive the management to change,” it said.

Blackrock’s investment management arm’s shorting of shares in Carillion has been widely reported. They also managed its defined contribution pension scheme, leading to questions over conflict of interest.

Its response states “the stewardship activities of BIS are separate from the investment decisions made by BlackRock’s portfolio management teams”.

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