Carillion plc: from demerger to compulsory liquidation

analysisCarillion plc grew through the acquisitions of Mowlem, Alfred McAlpine and Eaga and depended heavily on public-sector contracts. In July 2017 it announced an £845 million provision on its construction contracts, followed in September by a services provision and a goodwill impairment; on 14 January 2018 the government told it that it would fund a trading liquidation rather than support the company, and it entered compulsory liquidation the next day. The FCA, the Insolvency Service and the FRC later acted against the company, its former executive directors and its auditor, while disqualification proceedings against five former non-executive directors were discontinued in October 2023 without any finding against them. ^{1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26}

analysisCarillion plc is registered at Companies House under number 03782379 as a public limited company incorporated on 28 May 1999; its only previous name on the register, Cameron 1999 plc, applied until 11 June 1999. It was formed in the 1999 demerger from Tarmac: its 2016 annual report dates its merger reserve to the demerger from Tarmac plc on 29 July 1999, and its January 2018 business plan describes the split of Tarmac Group into Tarmac (building materials) and Carillion (support services and construction services). When Carillion collapsed in January 2018, the House of Commons committees reported, the group consisted of 326 companies, 199 of them based in the UK, and the Insolvency Service's chief executive told them that the company's 'incredibly poor standards' had made it difficult to identify even a list of directors. ^{1 2 3 4}

analysisAccording to the committees' May 2018 report, Carillion grew by buying Mowlem for £350 million in 2006 and Alfred McAlpine for £565 million in 2008, taking on their pension scheme deficits, and Eaga in 2011, a purchase the committees called 'disastrous': they said it cost Carillion £298 million and was followed by five consecutive years of losses totalling £260 million to the end of 2016. The committees said the acquisitions were funded through debt rather than equity. These are the committees' figures and characterisations; the acquired companies are now Carillion JM Limited, Carillion (AM) Limited and Carillion Energy Services Limited. Philip Green, the chairman, told the committees he regretted that the board 'did not reduce net debt sooner' and conceded that it had been too slow to explore raising equity rather than relying on debt. ³

analysisMuch of the work was for the state. On the day of the liquidation the Cabinet Office said that Carillion held approximately 450 contracts with government, representing 38% of its 2016 revenue, with key central government contracts at the Department for Education, the Department for Health and Social Care, the Ministry of Justice, the Ministry of Defence and the Department for Transport. The National Audit Office counted around 420 UK public sector contracts at the point of liquidation, found that by value Carillion was central government's sixth largest supplier in 2017, and put public sector work at 33% of total revenue and 45% of UK revenue. ^{5 6 7}

analysisThe committees' report states that Carillion's borrowing rose from £242 million in December 2009 to £689 million in December 2016 – the gross borrowing of £688.7 million in its 2016 annual report – and that its debt-to-equity ratio reached 5.3, against a ratio of 2 that the committees described as widely considered acceptable; Green told them the board had consistently challenged management on debt, while regretting that it had not reduced net debt sooner. The committees also compared £441 million of dividends with £246 million of pension deficit recovery payments over 2011 to 2016, from the cash flow statements, arguing that funding pension schemes is an obligation and paying dividends is not. Keith Cochrane denied that dividends were given priority, Richard Adam answered that from 2012 to 2016 dividends rose by 12 per cent and pension payments by 50 per cent, and TPR said Carillion's ratio of dividends to pension contributions was better than other FTSE companies'. TPR's later report concluded that withholding the 2015 and 2016 dividends would not automatically have produced extra payments to the schemes, given the group's bank debt and other creditors. ^{1 2 3 4}

analysisAt the liquidation Carillion was responsible for funding 13 UK defined benefit pension schemes, and TPR reports that 19 of the roughly 350 entities in the group were participating employers in them. The Pension Protection Fund estimated in February 2018, on an initial and revisable basis, that its eventual claim would be in the region of £800–900 million for about 27,500 members; in a letter the committees published in July 2018 its chief executive put the funding shortfall at the point of insolvency at about £800 million on a PPF basis, with most schemes in assessment. ^{1 4 5 6}

analysisOn 10 July 2017 Carillion issued a profit warning, reducing the value of several major contracts by £845 million. Its half-year results of 29 September 2017 kept that provision, added a £200 million provision for support services contracts and a £134 million goodwill impairment, and reported a first-half loss before taxation of £1,153 million; the committees noted net liabilities of £405 million and borrowing of £961 million at that point. ^{1 2}

analysisThe House of Commons committees concluded that Carillion 'used aggressive accounting policies to present a rosy picture to the markets', citing contract margins maintained despite evidence that they were optimistic, revenue recognised for work not yet agreed and the accounting for its early payment facility, and that, whether or not this was within the letter of accountancy law, it was intended to deceive lenders and investors. That is the conclusion of a parliamentary select committee report, not a judicial or regulatory finding. Zafar Khan, who signed off the 2016 accounts, rejected the idea of a concerted effort to adopt aggressive accounting; the board's public position was that there was no misstatement and that the provisions reflected a sudden deterioration on key contracts between March and June 2017; and former directors told the NAO that all but one of the practices identified by FTI complied with accounting standards or had been disclosed. In October 2023 the Insolvency Service, with Richard Howson's disqualification undertaking, published statements quantifying what it described as misstatements in the 2015 and 2016 accounts, and the FRC published findings of serious breaches in KPMG's audits of those years; in May 2026 the FRC announced that Adam and Khan had accepted misconduct, each admitting recklessness and a failure to act with integrity, with no finding or admission that either acted dishonestly or deliberately. ^{1 3 4 5 6}

analysisAfter Carillion asked the government for support, first in a letter of 31 December 2017, the Cabinet Office decided, according to the NAO, that a trading liquidation – in which Carillion would enter liquidation but keep providing services until other arrangements were made for each contract – was better than financial support. The Chancellor, the Minister for the Cabinet Office and the Prime Minister approved it in principle on 11 and 12 January; on 14 January officials told Carillion that the government would not provide support but would fund a trading liquidation, its main creditors then also refused further support, and the board filed for liquidation in the High Court on 15 January. ¹

analysisOn 15 January 2018 winding-up orders were made against Carillion plc and associated companies – Carillion Construction, Carillion Services, Planned Maintenance Engineering, Carillion Integrated Services and Carillion Services 2006 – and the court appointed the Official Receiver as liquidator. On figures as of 18 May 2018 the Official Receiver expected total liquidation costs of £522 million, income of £417 million and a £44 million distribution to creditors and reimbursement of fees, a net cost of £148 million that the Cabinet Office would bear from the £150 million it had already provided; the NAO cautioned that the forecast was uncertain and that the final cost would take a long time to establish. ^{2 1}

analysisUnsecured creditors of Carillion plc are not expected to receive a dividend: the published table of anticipated distributions shows it as 'Not anticipated' for Carillion plc and 'Nil' for Carillion Construction Limited. On 16 October 2026 the Official Receiver and the special managers gave notice that they intended to ask the court to disapply the prescribed part for Carillion plc's unsecured creditors, on the basis that the cost of doing so would far exceed its value; the retained record does not show the court's decision on that application. ^{3 4}

analysisBy a Decision Notice published on 28 July 2022 the FCA, which considered that Carillion had recklessly published misleading announcements on 7 December 2016, 1 March 2017 and 3 May 2017, imposed a public censure because the company was insolvent; otherwise it would have imposed a penalty of £37,910,000. Acting by the Official Receiver, Carillion made no representations and neither admits nor denies the matters, which the FCA did not treat as an admission, and a Final Notice followed in 2026. Richard Howson, Richard Adam and Zafar Khan each referred the FCA's Decision Notices of 24 June 2022 to the Upper Tribunal; after they withdrew those challenges the FCA fined Adam £232,800 and Khan £138,900 in January 2026 and Howson £237,700 in February 2026, finding that each acted recklessly and was knowingly concerned in Carillion's breaches. The press releases do not state that any of them admitted the findings, and the FRC's May 2026 notice gives the Adam and Khan fines as £232,830 and £138,960. In 2018 Adam had told the committees that he was participating in the regulatory investigations, and Khan that he would explain his position in their course. ^{1 2 3 4 5}

analysisThe Insolvency Service accepted disqualification undertakings from the three former executive directors under section 7 of the Company Directors Disqualification Act 1986: Zafar Khan for eleven years from 20 July 2023, Richard Adam for twelve and a half years from 3 August 2023 and Richard Howson for eight years from 25 October 2023. Its proceedings against five former non-executive directors were discontinued on the eve of a trial due to start on 16 October 2023, according to a briefing by those directors' own lawyers; the case had rested on an alleged strict duty to know the company's true financial position; the directors argued that no such duty exists in law, that it would contradict the codified duty of care in section 174 of the Companies Act 2006 and be impossible to comply with, and that unfitness requires a want of probity or really gross incompetence, for which they said no proper basis was advanced. The retained official records neither name the five nor state the Insolvency Service's reasons. A government answer of 24 October 2023 put the Insolvency Service's estimated costs against all eight directors at £11,064,519, with £2,725,000 recovered. ^{6 7 8 9 10 11}

analysisKPMG, Carillion's auditor, was sanctioned by the FRC on 12 October 2023 under settlement decisions that reflected its co-operation and admissions: KPMG LLP's financial sanction of £26,500,000 was reduced by 30% to £18,550,000, with a severe reprimand, a declaration that the relevant audit reports did not satisfy the relevant requirements and an order to take remedial action; the decision notices themselves were not published with the announcement. The Official Receiver, as liquidator, had issued High Court proceedings in January 2022 claiming £1.3 billion for alleged negligent audits, a claim that was never adjudicated; a national newspaper reported on 17 February 2023 that KPMG had settled it on confidential terms, with no admission of liability reported. KPMG's UK chief executive said he was pleased the claim had been resolved and that it was important that all learn the lessons from Carillion's collapse. ^{12 13 14}