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Former Carillion FD banned for over a decade

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The former finance director of Carillion has been banned as a director for 11 years after he provided “false and misleading” financial information for the collapsed construction company.

5th Jul 2023
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Zafar Khan, who lasted just nine months as the finance director of Carillion from January 2017, accepted a disqualification from the Insolvency Service for his conduct as a director at the PLC. 

During his short tenure as group FD, after moving up the ranks as the group financial controller, Khan was responsible for ensuring financial information was accurate. 

However, Khan had given “false and misleading” information in the preparation of Carillion's financial statements for 2016, which resulted in the construction company declaring a pre-tax profit of £146.7m, when it should have reported an adjusted year end loss of at least £61.7m - a £208.5m material misstatement.

The misstatement related to the performance of five major construction contracts, including Royal Liverpool University Hospital, Battersea Power Station and Aberdeen Western Peripheral Route.

The Insolvency Service said Khan’s actions caused Carillion to make ‘misleading’ market announcements on 1 March 2017 and May 2017 about the reality of the construction company’s financial performance. 

He was also held responsible for causing Carillion to make a £54.4m dividend payment in 2017, which the Insolvency Service said could not be justified because the 2016 financial statements did not give a true and fair view, and it was not in the interest of its members or creditors. 

Other Carillion execs under scrutiny 

Khan is the first of the Carillion directors to face such a ban, with litigation against the remaining directors ongoing and a trial set to commence on 16 October. 

The former FD’s disqualification comes after the Financial Conduct Authority (FCA) handed him a £154,400 sanction in August last year and he, along with his fellow former Carillion directors, was accused of “recklessly” and “wilfully” publishing false information about the construction outsourcer.

Khan became group FD after his predecessor Richard Adam retired following an almost 10-year stint in the position. The FCA imposed a financial penalty of £318,000 on Adam. 

Adam took much of the blame for the unsustainability of the company’s aggressive accounting policies in a May 2018 report from the Business, Energy and Industrial Strategy and Work and Pensions Committee. 

That report found that Adam sold all his shares for £776,000 before the company publicly collapsed and its value tanked. Khan was never able to get a grip on the finances, but it wasn’t until his successor Emma Mercer came took the role of finance director that the whistle was blown on the company’s accounting irregularities. 

Carillion’s collapse

Carillion collapsed into liquidation in January 2018 after an £845m profit warning on 10 July 2017 led to the share price falling by 39% on the day of the announcement and then plummeting further by 70% within days. The collapse of the company caused thousands of jobs to be lost and significant delays to hospitals. When all was said and done, Carillion had just £29m in cash and liabilities of nearly £7bn. 

The scandal spread to its auditor KPMG, which was fined £14m last year by the accountancy watchdog for lying to regulators about the outsourcer’s auditing and for falsifying documents, and then in February this year, the Big Four firm settled a £1.3bn creditors claim.

Replies (6)

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By Hugo Fair
06th Jul 2023 01:13

Being "banned as a director for 11 years" after lasting "just 9 months as the finance director" seems a little harsh ... at least when compared to the absence of similar punishment for the FD from whom he inherited the whole mess (but who 'escaped' on the basis that he had already fully retired)!

That predecessor sold all his shares for £776,000 before the company publicly collapsed and its value tanked, but 'only' received a financial penalty of £318,000 from the FCA.

Neither was remotely innocent - indeed only prison would seem a suitable penalty for the number of lives ruined (let alone a reward for the wholesale lack of professional integrity) - but it feels like old school/establishment figures are eased out whilst those who aren't 'really our sort' can be put in the stocks.

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Replying to Hugo Fair:
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By paul.benny
06th Jul 2023 10:37

Hugo Fair wrote:

Being "banned as a director for 11 years" after lasting "just 9 months as the finance director" seems a little harsh ..

I might agree if he was a new hire. But as group controller for the previous four years, I think he would have been well aware of the aggressive accounting policies.

According to Wikipedia, the Insolvency Service have been seeking disqualifications for eight directors. Maybe the ban on Richard Adam has not yet been confirmed.

Agree that a £318k penalty (from FCA) against £776k share proceeds looks too small.

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Replying to paul.benny:
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By ColA
06th Jul 2023 10:56

Quite. In outline in those key positions it would have been impossible to be unaware of the misstated valuations.
Wonder how many other ex-FDs or FCs bury misinformation too.
As regards 11-year ban v. a prison sentence - not sure of the logic in that post.

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By Self-Employed and Happy
06th Jul 2023 09:43

It's this type of thing that should be leading towards criminal proceedings, how on earth the retiring guy has got away with this is amazing

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By ASF
06th Jul 2023 10:25

Share the thoughts of other respondents. I have said before on this forum that the kind of practices that the company adopted were well known by people working in the Company's Finance team and outside across several years. They are probably not unique in that, but until such things emerge (more often as companies fail) they remain buried. I am also agreed that the retiring guy should be the person receiving the harshest treatment, although the last guy standing when the music stopped had worked his way up in the Finance team, so probably had plenty of time to find another job, get out and whistle-blow, but either chose not or felt unable to. The construction industry, with much reporting based around estimates and forecasts of progress and at completion is particularly susceptible to management judgements, and so, profit as well as cash manipulation around reporting deadlines. The real question is "when" and not "if" another similar scandal will emerge, I suspect..

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By Ashok G
07th Jul 2023 13:27

Agree with ASF for estimates and projected completion.

Carillion has/had many Government contracts!!!

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