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River Bank Repairs at Oughtibridge, Courtesy of Carillion
Creative-commons_Carillion_Geograph_Terry-Robinson

Second Carillion FD gets banned for over a decade

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The Insolvency Service has handed out another long-term ban to a former finance director of the collapsed construction company Carillion.

19th Jul 2023
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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.

Replies (8)

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By Hugo Fair
19th Jul 2023 17:57

Why do our public enforcers use such weasel words ... "false and misleading statements", "wrongly reporting and accounting the payments", "overstatement", "understatement", "misleading"?

What they are describing are examples of LYING (within accounts and to subsequent investigators) - it's as simple as that!

Whereas the (otherwise toothless) Parliamentary inquiry into the collapse of Carillion, published a report on 16 May 2018 in which Adam was severely criticised:
.. described as "the architect of Carillion’s aggressive accounting policies".
"He, more than anyone else, would have been aware of the unsustainability of the company’s approach. His voluntary departure at the end of 2016 was, for him, perfectly timed. He then sold all his Carillion shares for £776,000 just before the wheels began very publicly coming off and their value plummeted. These were the actions of a man who knew exactly where the company was heading once it was no longer propped up by his accounting tricks."

That report also recommended that the Insolvency Service should consider whether the former Carillion directors, including Adam, could be disqualified from acting as a director ... so only 5+ years to do just that (well done IS).

Have a read about him on Wikipedia ... "When the numbers didn’t come to where he wanted them to be he would simply say to the management ‘Go back and do the numbers again.’"

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Replying to Hugo Fair:
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By paul.benny
20th Jul 2023 10:43

I'll pick up on the five year time taken to disqualify. There are multiple bodies who may investigate and penalise, each with different grounds for action. And there is pecking order. I don't know whether Mr Adam's professional body have even been able to begin their investigation, let alone conclude.

This gives the appearance of undue delay and it doesn't look good.

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By JustAnotherUser
20th Jul 2023 08:34

Just a criminal and I wish that word could be used, instead we have a retired-before-he-was 60 millionaire paying pennies on the pound fines for his activity, and likely anyone around him made bank also and will ride off into the sunset with bags of cash in hand.

"Mr Adam retired on 31 December 2016. On 1 March 2017 he sold his entire existing shareholding for £534,000, including performance awards for 2013-2015 of £277,000 which vested on his retirement. He then sold his long term incentive plan awards for 2014 on 8 May 2017, the day they vested, for £242,000"

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By DianeLockhart
20th Jul 2023 15:08

Disqualification is meaningless to Adams. He is retired. The two disqualifications are the easiest ones as they are both the most seniors officers in charge of the finances. Notwithstanding they are symbols of retribution for those parties.

This is a goliath of a case, never seen before. It is easy to criticise the process and results thus far, but it is beyond all of our comprehensions the extent of the issues managed by the Official Receiver from the extensive un-combined accounting and reporting systems of Carillion, political intervention, the parliamentary enquiry outcome and pressure, IP's and advisors opinions and each parties motives impacting, whilst having to curtail to the FCA and others. The extent of the conflict of professional firms is unseen before and must have been debilitating in establishing trustworthy advisors.

So to have even achieved a disqualification in this situation is a feat.

However the law is inadequate. Disqualification is there to protect us, the public from the offender. I liken it to an individual getting a disqualification from driving, it stops the offender from crashing into us on the road for a period of time. Drivers are insured, where we are hurt by them, we claim on their insurance policy or against them. Sometime drivers go to prison when they injure or kill someone. However, Director Disqualification results are not backed up by an insurance policy which pays out for their offences. The CDDA or the OR in prosecution rarely causes imprisonment, a business has died at the directors hands and peoples/other organisations futures have changed beyond recognition as a result. It is a long road for a liquidator to make a financial recovery from a director; the director may spend his money defending himself, potentially leaving little or nothing for the creditors of the failed business. Someone has to fund a litigation. There is no similar legislation, like proceeds of crime which applies to the gain made by the Directors of Carillion. Currently the states purse suffers to conduct the investigation. The CDDA doesn't hold hands with the financial recovery made by liquidators.

The law is disjointed and protracted in disqualification - prosecution - financial penalty and needs overhauling.

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By Jo Nokes
20th Jul 2023 15:44

Why isn't this classed as fraud, with the prospect of a gaol sentence?

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Replying to Jo Nokes:
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By DianeLockhart
24th Jul 2023 10:43

Fraud has different burdens of proof and then different penalties in civil and criminal proceedings. Fraud is difficult to PROVE, you have to PROVE intent.

There is no criminal proceedings in this matter it is only civil, there are no 'gaol sentence' in civil proceedings only the disqualifications of the offenders.

The best we can hope for in this instance is them be inconvenienced by a disqualification.

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Replying to DianeLockhart:
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By Hugo Fair
24th Jul 2023 11:55

"Fraud is difficult to PROVE, you have to PROVE intent" ... but that doesn't mean (as appears to be the case all too frequently) that 'difficult' equates to 'not bother'.

IANAL but the intent is pretty clear - and the system should step up to provide the 'proof' for the lawyers to present/repudiate.
It wouldn't hurt for an element of 'pour encourager les autres' to come into play!

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By AndrewV12
27th Jul 2023 09:12

'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. '

This just cannot be right where is the deterrent for false accounting on a grand scale. A poor [***] at the bottom of society nicks a bit of food from a supermarket, he is caught 3 times and has to go to jail, yet finance directors who perform fraud on a grand scale walk away Scott free, IF YOUR GOING TO PERFORM CRIME FRAUD IS THE WAY TO GO.

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