Enforcement against Carillion, its directors and its auditor

analysisThe Pensions Regulator's report summarises that the Financial Conduct Authority (FCA) and the Insolvency Service concluded from their investigations that there were grounds to use their respective powers, based on findings of governance and reporting failings, and that TPR set up a working group with these agencies and the Financial Reporting Council (FRC) to share information. The FCA published Decision Notices in July 2022 and imposed its sanctions by Final Notices in 2026, after the three former executive directors withdrew their challenges. The Insolvency Service accepted disqualification undertakings from the same three between 29 June and 4 October 2023, and its proceedings against five non-executive directors were dropped in October 2023. ^{1 2 3 4 5 6}

analysisCarillion announced on 3 January 2018 that the FCA was investigating it. In a letter to the committees published in July 2018, the FCA's chief executive explained that the investigation concerned the timeliness and content of Carillion's announcements: whether the matters in the 10 July 2017 trading update, including the £845 million contract provision, were identified and announced at the appropriate time, and whether earlier announcements were false or misleading. It covered potential breaches of the Market Abuse Regulation, the Listing Rules and the Listing Principles, and the FCA was also looking into allegations of insider trading before 10 July 2017. Asked about a reported request from Carillion's former chairman, Philip Green, to protect the company and its lenders from fines or penalties for conduct before July 2017, the chief executive replied that he was not aware of a request from Carillion or the Cabinet Office to the FCA to withhold action or grant immunity. ¹

analysisOn 7 August 2020 ICC Judge Jones of the Insolvency and Companies Court held that the FCA needed the court's permission under section 130(2) of the Insolvency Act 1986 to take regulatory action against a company in liquidation, and granted that permission. Under it, on 18 September 2020, the FCA issued a Warning Notice concerning alleged market abuse and Listing Rules breaches by Carillion and others and published a statement; for Carillion it proposed a public censure, not a financial penalty. The FCA appealed against the holding that permission was needed, though not against the grant itself, and the High Court (Mr Justice Michael Green) gave judgment on 27 October 2021 in The Financial Conduct Authority v Carillion Plc (in liquidation) [2021] EWHC 2871 (Ch), with Carillion represented through the Official Receiver as liquidator. The judgment records the Official Receiver's evidence that Carillion was the largest trading liquidation in UK history, that proofs of debt exceeded £7.1 billion while realisations "as of last year" totalled only some £575 million, that the Insolvency Service's fee income had been spent and all realisations absorbed by liquidation expenses, and that any costs of Carillion taking part in FCA enforcement proceedings would have to be met from public funds. The retained published copy of the judgment ends before the court's conclusion, so the outcome of the appeal is not recorded here. ²

analysisOn 28 July 2022 the FCA published its Decision Notice imposing a public censure on Carillion plc (in liquidation) rather than a financial penalty because the company was insolvent; otherwise it would have imposed a penalty of £37,910,000. The FCA considers that Carillion recklessly published misleading announcements on 7 December 2016, 1 March 2017 and 3 May 2017 and, between 1 July 2016 and 10 July 2017, breached Article 15 of the Market Abuse Regulation, Listing Rule 1.3.3R, Listing Principle 1 and Premium Listing Principle 2. These are the FCA's findings. According to the FCA, because Carillion is in insolvent liquidation and no penalty was sought, Carillion, acting by the Official Receiver as liquidator, made no representations on the Warning Notice; its position is that it neither admits nor denies the matters set out in it, and the FCA did not treat this as an admission. Carillion did not refer the notice to the Upper Tribunal, and the FCA's February 2026 press release lists a 2026 Final Notice for Carillion plc (in liquidation). ^{1 2}

analysisIn Decision Notices dated 24 June 2022 and published on 28 July 2022, the FCA decided to fine former chief executive Richard Howson £397,800 and former finance directors Richard Adam £318,000 and Zafar Khan £154,400. The FCA considers that each acted recklessly and was knowingly concerned in Carillion's contraventions: they were aware of the deteriorating expected performance of the UK construction business but did not ensure that the announcements reflected it, and did not make the Board and Audit Committee aware of it. All three contested the decisions by referring them to the Upper Tribunal, and the FCA stated that the findings were therefore provisional and the action had no effect pending the Tribunal's determination. Each later withdrew his challenge, and the FCA imposed final penalties of £232,800 on Adam and £138,900 on Khan in January 2026 and £237,700 on Howson in February 2026. The FCA's February 2026 release notes that Howson was one of two executive directors on Carillion's board, the other being the group finance director, first Richard Adam and then Zafar Khan. ^{1 3 2}

analysisOn 7 January 2026 the FCA announced that it had fined Richard Adam, finance director from April 2007 to 31 December 2016, £232,800 and Zafar Khan, finance director from 1 January 2017 to September 2017, £138,900, after both withdrew the references to the Upper Tribunal by which they had contested the Decision Notices of 24 June 2022. The FCA found that both acted recklessly and were knowingly concerned in Carillion's breaches of the Market Abuse Regulation and the Listing Rules. The FRC's May 2026 notice gives these FCA fines as £232,830 and £138,960; the small differences are not explained. On 16 February 2026 the FCA announced a fine of £237,700 on Richard Howson, chief executive from 1 January 2012 to 10 July 2017, imposed after he too withdrew his reference against his Decision Notice of 24 June 2022. It found that Howson acted recklessly and was knowingly concerned, between 1 July 2016 and 10 July 2017, in Carillion's breaches of Article 15 of the Market Abuse Regulation, Listing Rule 1.3.3R, Listing Principle 1 and Premium Listing Principle 2: aware of serious financial troubles in the UK construction business, Howson did not reflect them in announcements or alert the board and audit committee. The FCA noted that primary responsibility for the accuracy of financial information lay with the group finance director, while Howson was the board member with most construction expertise. These findings became final once the references were withdrawn; neither press release states that the three admitted them. In 2018 Adam had told the committees that he was participating in the regulatory investigations, which he hoped would be fair and involve due process, and Khan that he would explain his position in the course of those investigations. ^{3 4 1 5 2}

analysisThe Insolvency Service told the committees in July 2018 that the Official Receiver's investigation into Carillion's failure had obtained more than 350TB of electronic data from the company and had contacted those who were directors in the three years before liquidation. It noted the Official Receiver's statutory duty to investigate and report misconduct and the possibility of disqualification for up to 15 years, and said that recoveries against company officers and third parties were being considered. According to a government answer in Parliament of 24 October 2023, the Insolvency Service, acting for the Secretary of State for Business and Trade, commenced disqualification proceedings on 12 January 2021 against three executive and five non-executive directors of Carillion plc. ^{1 2}

analysisCompanies House records disqualification undertakings by the three former executives under section 7 of the Company Directors Disqualification Act 1986, each for conduct while acting for Carillion plc. Zafar Khan's, given on 29 June 2023, runs for eleven years from 20 July 2023 to 19 July 2034; Richard Adam's, given on 13 July 2023, for twelve and a half years from 3 August 2023 to 2 February 2036; and Richard Howson's, given on 4 October 2023, for eight years from 25 October 2023 to 24 October 2031. The Insolvency Service announced that it had accepted them on 29 June, 13 July and 4 October 2023, Howson's for his conduct as a director of Carillion plc, of which he had been chief executive until 10 July 2017. A legal briefing by the non-executive directors' lawyers, whose clients were parties to the same proceedings, states that the case followed the Official Receiver's 2018–2020 investigation, was issued in the High Court in January 2021 under section 6 of the Act shortly before a limitation deadline, and alleged in substance that the two former finance directors knowingly caused the publication of non-compliant accounts for seven contracts and transactions, misleading market announcements and an unjustified dividend, and that the former chief executive ought to have known of this. The allegations were not tried, and according to the briefing none of the undertakings involved any admission by the executives as to the alleged fraud or any direct knowledge of or involvement in the preparation of incorrect accounts; the Insolvency Service's own announcements state the grounds of Howson's undertaking separately. The government answer of 24 October 2023 refers to the proceedings against the five non-executive directors as dropped in October 2023 and to costs of £2,725,000 recovered following the disqualification of the three executive directors. ^{3 4 5 6 7 2}

analysisThe Insolvency Service's announcement of its acceptance of Howson's 8-year undertaking, which Companies House records as running from 25 October 2023 to 24 October 2031, sets out grounds framed as what he ought to have known. They were not tried in court, and according to the non-executive directors' lawyers none of the executives' undertakings involved admissions as to the alleged fraud or direct knowledge of or involvement in preparing incorrect accounts. The announcement states that Howson caused Carillion plc to account for and report the performance of its major construction contracts (Royal Liverpool University Hospital, Battersea Power Station, the Aberdeen Western Peripheral Route, Midlands Metropolitan Hospital and Msheireb Phase 1(B)) in its 2015 and 2016 financial statements in a way he ought to have known falsified and concealed their deterioration: the 2015 misstatement on those contracts was £95.4m, so that profit should have been £65.3m rather than the £155.1m reported, and for 2016 the misstatements of £179.2m on the contracts and £29.3m on the Ecopod and Geneva transactions meant that a loss of £61.7m should have been reported instead of a £146.7m profit. It also states that Howson caused Carillion to procure payments from Wipro in 2013 (£39.0m: £25.0m for Ecopod under an IP assignment agreement and £14.0m of termination charges) and 2014 (£2.0m) that were wrongly accounted for as profit in the 2013 financial statements, overstating profit by £39.0m and understating net debt by £41.0m, and payments in 2016 totalling £40.0m that overstated 2016 profit by £34.4m (the Geneva transaction) and understated net debt by £39.2m, and that he ought to have known of the false accounting and of the concealment from the auditors of Carillion's obligation to make repayments to Wipro. On the Wipro payments, Carillion's 2016 accounts had stated that management concluded, after a benchmarking review, that the 2016 transactions should be recognised independently and in their own right. In his July 2018 response to the committees Howson had said that the reasons for Carillion's demise were mixed and varied and that debt was too high, and argued that any examination must cover the final months before liquidation and the amounts owed to Carillion by public-sector customers. ^{4 6 7 1 8}

analysisThe Insolvency Service's announcement of Howson's undertaking further states that he caused Carillion plc to make market announcements on 7 December 2016, 1 March 2017 and 3 May 2017 that he ought to have known were misleading, in breach of Listing Rule 1.3.3R and Article 15 of the Market Abuse Regulation, and to pay a 2016 final dividend of £54.4m on 9 June 2017 that he ought to have known could not be justified by properly prepared accounts and was not in the interests of the company, its members or creditors; a national newspaper later summarised this ground as a £54m dividend signed off in June 2017. These grounds were stated by the Insolvency Service for an undertaking and were not tried, and they accompanied its acceptance of Howson's 8-year undertaking, recorded by Companies House as running from 25 October 2023 to 24 October 2031; according to the non-executive directors' lawyers, none of the executives' undertakings involved admissions as to the alleged fraud or direct knowledge of or involvement in preparing incorrect accounts. Separately, the FCA, whose 2022 notice to Carillion concerned announcements of the same three dates, fined Howson £237,700 in February 2026 for being knowingly concerned in Carillion's breaches between 1 July 2016 and 10 July 2017, after he withdrew his challenge. ^{7 4 6 9 10}

analysisThe case against the five former non-executive directors ended without a trial. According to the legal briefing by their lawyers, the Insolvency Service discontinued it on the eve of a trial listed for about 13 weeks and due to start on 16 October 2023. The case rested on an alleged strict duty to know the company's true financial position, the "NED Duty", which the Insolvency Service's counsel had called a "test case"; the directors argued that no such duty exists in law, that the Insolvency Service's reliance on Re Westmid Packing Services (No.2) was erroneous, that a strict duty to know 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 the Insolvency Service never advanced a proper basis. The briefing also notes that neither the FCA nor the FRC brought action against any of the non-executive directors. The government answer of 24 October 2023 refers to the proceedings as dropped in October 2023 and puts the Insolvency Service's estimated costs in the proceedings against all eight directors at £11,064,519, with £2,725,000 recovered following the disqualification of the three executive directors; the retained official records do not state the Insolvency Service's reasons or name the five directors. An online encyclopedia article on Philip Green, a secondary and non-official source, states that in January 2021 the Insolvency Service said it would seek to ban eight former Carillion directors, including Green, and that the trial was cancelled after the Insolvency Service decided it was not in the public interest to pursue the former chairman and other directors; no finding was made against Green. In his July 2018 response to the committees Green had said that he disagreed with many of their conclusions and would cooperate fully with the Insolvency Service, FCA and FRC investigations. ^{7 2 11 1}

analysisOn 12 May 2026 the FRC announced sanctions on Carillion's former group finance directors Richard Adam and his successor Zafar Khan, previously Financial Controller, under agreed settlements rather than after a contested tribunal hearing. Both accepted Misconduct, each admitting that they acted recklessly and failed to act with integrity in preparing accounting information on specific transactions, major UK construction contracts and a supply chain finance facility that were material to one or more financial years from 2013 to 2016 and the half year to 2017; the FRC made no findings, and they made no admissions, that either acted dishonestly or deliberately. Adam received a recommended 15-year exclusion from the ICAEW, a financial sanction of £550,000 reduced to £222,019 and a severe reprimand; Khan a recommended 10-year exclusion, £225,000 reduced to £60,228 and a severe reprimand, the reductions reflecting the FCA fines and settlement discounts. The FRC's Executive Counsel also sanctioned three other former Carillion senior accountants, not named because of specific and exceptional confidential circumstances, with recommended exclusions of 8, 5 and 2 years, financial sanctions of £70,000 discounted to £45,500 and of £40,000 discounted to £26,000 (twice), and severe reprimands. A member of the independent Tribunal Panel approved the settlement terms, and the FRC published the settlement agreements and the joint particulars of facts and acts of misconduct, edited for publication. It stated that the announcement marked the conclusion of its investigations arising out of Carillion's collapse, after its earlier enforcement concerning KPMG's audits, and that it should not be treated as evidencing an investigation into, or findings about, any other persons or entities. In 2018 Adam had told the committees that he did not believe the evidence justified their conclusions about his role, and Khan that he did not agree with their views insofar as his own position was concerned. ^{1 2}

analysisThe High Court's judgment of 3 June 2020 records that a standstill agreement had been concluded while the office-holders investigated the work of Carillion's auditor, KPMG, and that on 1 October 2019 Carillion's solicitors wrote to KPMG's solicitors referring to write-downs in June and September 2017 of £845 million on certain contracts, a further £200 million on support services contracts and a £134 million goodwill impairment. Carillion applied under CPR 31.16 for pre-action disclosure of KPMG's electronic audit files, intending to claim that KPMG, as auditor of Carillion and many of its subsidiaries, had failed to detect that the financial statements did not reflect the true position on construction contract revenue and goodwill. The application concerned the audits for 2014 to 2016 and, for contract accounting, 9 of the 58 contracts reviewed by Carillion's management between May and July 2017 (write-downs were made on at least 45): the Aberdeen Western Peripheral Route, Royal Liverpool Hospital, Battersea Power Station, Midland Metropolitan Hospital, Southmead, TTC Vaughan and Union Station in Canada, and Msheireb and Al Dara in the Middle East. In Carillion Plc (in liquidation) v KPMG LLP and KPMG Audit Plc [2020] EWHC 1416 (Comm), Mr Justice Jacobs dismissed the application, considering that after KPMG's letter of response Carillion should plead its case in the usual way. ^{1 2}

analysisAccording to the Pensions Regulator's regulatory intervention report, the Official Receiver, acting as liquidator of the Carillion group, issued High Court proceedings against KPMG in January 2022 claiming damages of £1.3 billion for alleged negligent audits of Carillion plc's financial statements. The negligence allegation was not adjudicated. A national newspaper reported on 17 February 2023 that KPMG had settled the claim, which concerned the audits of Carillion's accounts for 2014 to 2016; neither KPMG nor the Official Receiver would confirm the amount, a spokesperson for the liquidator said the parties had agreed that the terms would remain confidential, and no admission of liability was reported. The report states that the creditors include HMRC and that the claimants alleged Carillion paid £210m in dividends in reliance on KPMG's audits. KPMG's UK chief executive said in a statement that he was pleased the claim had been resolved, that Carillion was an extreme and serious corporate failure and that it was important that all learn the lessons from its collapse. ^{3 4}

analysisThe FRC's own enforcement against the auditor concluded on 12 October 2023, when it announced that its Executive Counsel had issued two Final Settlement Decision Notices under the Audit Enforcement Procedure. Under the first, KPMG LLP received a financial sanction of £26,500,000, reduced by 30% to £18,550,000 to reflect the firm's co-operation and admissions, a severe reprimand, a declaration that the relevant audit reports signed on its behalf did not satisfy the Relevant Requirements and an order to take remedial action, and it pays Executive Counsel's costs of both investigations, £5,324,365.68; the Executive Counsel described the financial sanction as the highest ever imposed by the FRC. These were settlement decisions reflecting the respondents' co-operation and admissions, and the decision notices themselves were not published when the outcome was announced. ⁵

analysisThe former directors' answers to the committees' May 2018 report were published, as their own accounts, in the committees' special report of July 2018, while the investigations were under way. Richard Howson wrote that the report had not considered all the key issues, that the reasons for Carillion's demise were mixed and varied, and that debt was too high but he had been committed to working through the challenging contracts and reducing it; he argued that the last months before liquidation, when 4 of the 5 experienced divisional managing directors were removed, and the amounts owed by government customers should have been examined. Richard Adam wrote that the reasons for Carillion's collapse were complex, that he did not believe the evidence justified the report's conclusions and that the assumptions made were unwarranted in respect of his role before his retirement in 2016, and that he was participating in the regulatory investigations, which he hoped would be fair and involve due process. Keith Cochrane, former interim chief executive, wrote that the committee appeared in several instances to have taken his evidence out of context and that he did not accept many of the report's conclusions, but that because of the ongoing investigations he would not comment in detail. Former chairman Philip Green wrote that he disagreed with many of the report's conclusions but would not comment while the investigations by the Insolvency Service (assisted by PwC as special manager), the FCA and the FRC were ongoing, and that he would continue to cooperate fully. Andrew Dougal, former audit committee chair, disagreed with many conclusions, and Alison Horner, former remuneration committee chair, said the report misquoted or misrepresented her evidence; each wrote that because of the ongoing investigations it would not be right to comment in detail (Dougal) or generally (Horner) at that time. ¹