Unite, the UK’s largest union, has called for the urgent reform of company and pension laws, after the true scale of the fundamental flaws that allowed Carillion to collapse earlier this month began to be revealed.
Unite made its call after the first joint hearing into Carillion’s collapse by the Business and Work and Pensions select committee.
The committee heard from several witnesses including Stephen Haddrill, Chief Executive Officer of the Financial Reporting Council (FRC), Sarah Albon, Chief Executive Officer of the Insolvency Service, and Robin Ellison, Chair of Trustees of Carillion’s Defined Benefit Pension Schemes.
During the hearing, Rachel Reeves MP, chair of the Business Select Committee, revealed that the largest item on Carillion’s balance sheet was “goodwill.”
Sarah Albon confirmed that, “uniquely,” the Insolvency Service had to be brought in following Carillion’s collapse as the company had no money to pay administrators’ costs. The total cost for the legal winding up Carillion is likely to be around £50 million, principally paid for by the taxpayer.
The Insolvency Service investigation into whether Carillion’s directors should be disqualified or prosecuted is being hampered by “the incredibly poor standard of Carillion’s record keeping.”
Sarah Albon also confirmed that, as Carillion was in liquidation, even if workers with Carillion are transferred to another contract (for example on the 450 public sector contracts it held), the workers would firstly have to be made redundant. There will be significant numbers of redundancies from Carillion where workers will not have their jobs transferred.
Carillion’s workforce will be eligible to claim a redundancy payment from the Redundancy Payments Office which will be funded by the taxpayer.
Unite assistant general secretary, Gail Cartmail, said: “The developing picture of the level of incompetence and mismanagement at Carillion is simply staggering.
“It is frightening that the legal framework in the UK is so weak that no one was able to intervene to prevent the company’s collapse, despite it now becoming apparent its financial problems began a decade ago. This was not a small company - it employed 20,000 workers, with thousands more in its supply chain.
“While Carillion’s employees face losing their livelihoods and the taxpayer has to pick up a huge bill for the company’s collapse, it remains unclear if anyone will ever be held responsible.
“The government needs to act swiftly and introduce new laws to ensure that other companies are not allowed to collapse in the same manner as Carillion.”
Stephen Haddrill, of the FRC, whose organisation is responsible for regulating auditors, accountants and actuaries, told the committee that despite having had concerns about Carillion’s previous auditing process, its audit had not been reviewed since 2013.
Mr Haddrill admitted that there was extremely poor corporate governance at Carillion but this was not the responsibility of the FRC to investigate.
Robin Ellison revealed that the trustees of Carillion’s pension schemes had constantly sought to get Carillion to increase its contributions and to reduce its pension deficit but the company refused. Therefore there was no formal agreement between the trustees and Carillion over how to reduce its deficit.
During Mr Ellison’s evidence, it was confirmed that at the same time that Carillion was refusing to pay increased pension contributions, it was borrowing money in order to pay shareholder dividends.