Second Carillion FD gets banned for over a decadeby
The Insolvency Service has handed out another long-term ban to a former finance director of the collapsed construction company Carillion.
Richard Adam, the Carillion’s Group finance director from April 2007 up until his retirement on 31 December 2016, has been disqualified as a director for 12 and half years.
The former Carillion director is the second FD from the outsourcer to have received a disqualification, coming a couple of weeks after his successor, Zafar Khan, was banned by the Insolvency Service for 11 years.
Concealed Carillion’s deterioration
Adam caused Carillion to rely on “false and misleading” financial information in the 2015 and 2016 financial statements for the costs and revenue of the performance of the organisation’s five major contractor contracts, including the Royal Liverpool University Hospital, Battersea Power Station, Aberdeen Western Peripheral Route, Midlands Metropolitan Hospital and Msheireb Phase 1.
The former FD concealed the warning signs on the health of the company, having the financial statements hide Carillion’s deteriorating and grave financial position and how the major contracts had become loss-making.
The value of the misstatement of these major contracts was £95.4m in 2015 and Carillion should have reported a profit of £65.5m, rather than £155.1m.
The false and misleading statements surrounding the major contracts caused another misstatement in 2016 of £179.2m. Carillion should have reported a loss of £61.7m, but instead it declared profits of £146.7m.
Procure payments from Wipro
Adam was also held responsible for two payments from the IT consultancy Wipro - one in 2013 for £39m and another in 2016 for £40m - which led to Carillion wrongly reporting and accounting the payments as profits in the financial statements in 2013 and 2016.
The wrongly reported and accounted payments led to Carillion making an overstatement of profit by £39m in both 2013 and £34.4m in 2016 and an understatement of net debt by £41.0m in 2013 and £39.2m in 2016.
His actions also led Carillion to conceal material information from auditors in the accounting periods ending 31 December 2013, 2015 and 2016 relating to major contracts and the transactions that caused the overstatement of profit and understatement of net debt.
Reckless December announcement
Carillion shocked the markets in July 2017 when it announced an expected provision of £845m, after having made a market announcement in December 2016 that gave no indication that a provision was likely to be required.
The construction company’s share price plummeted by 39% on the announcement of the provision and then by 70% within three days. Carillion collapsed into liquidation in January 2018.
The Financial Conduct Authority (FCA) said the announcement in December 2016 was “misleading and was made recklessly” and did not not “accurately or fully disclose the true financial performance of Carillion”.
The Insolvency Service also pulled Adam up on the December 2016 announcement as part of the reasons for his ban, saying that it enabled Carillion to make a market announcement on 1 March 2017 which was “misleading as to the reality of Carillion’s financial performance”.
Alongside receiving a ban, Adam has already received a £318,000 financial penalty from the FCA.
Two directors have already received bans from the Insolvency Service, while the remaining directors will face trial in mid-October.