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Carillion chiefs face investor wrath as 'gross failings' in finances are revealed

Carillion’s top shareholders are preparing to launch a blistering attack on its management, after evidence emerged that aggressive accounting practices were used to mask the disarray in its finances.
Murdo Murchison of Kiltearn Partners, Euan Stirling of Aberdeen Standard Investments and Amra Balic of the world’s biggest investor BlackRock will appear before a parliamentary ­select committee investigation into ­Carillion’s collapse on Wednesday.
They are expected to reveal that shareholders were kept in the dark about the scale of Carillion’s problems during the run-up to its first profit warning in July. The trio of City heavyweights could join calls by MPs for ­Carillion’s directors to hand back their bonuses, sources said.
The select committee has published documents from an independent ­review of Carillion carried out in September as part of its attempt to secure new finance. Instead of supporting the company, outside finance experts ­uncovered “gross failings of corporate governance and ­accounting”.
Carillion chiefs face investor wrath as 'gross failings' in finances are revealed

Keith Cochrane spearheaded the plans to get Carillion back on track at the end of last year

Credit:
Paul Grover
A draft independent business review was intended to be presented to lenders as Carillion sought a cash injection to help it remain solvent, although the company went into liquidation before it was used.
Consultancy firm FTI was paid ­almost ?3.5m to carry out the work, which found Carillion had used ­“aggressive management of working capital” to compensate for its failure to convert profits into cash.
“Rather than addressing the underlying challenges facing the group in ­respect of problem contracts and the strength of the balance sheet, transactions were entered into, and accounting treatments and assumptions made, to enhance the reported profitability and net debt position of the group,” the report said.
The company’s public reporting of its net debt had been “aggressively managed through the short-term ­deferral of payments, acceleration of receipts and receipt of short-term loans from joint ventures”, the report suggested. It also found that projects had suffered because there had been “governance failures” over the level of risk and “a focus on short-term financial benefits at the expense of long-term profitability and viability”.
At the select committee on Wednesday, Mr Murchison in particular is ­expected to tell the group that shareholders were unaware of issues with contracts that led to Carillion making an ?845m writedown in July, despite being in regular contact with its management team. Even problems with a contract in Qatar, which former chief executive Richard Howson had said contributed heavily to Carillion’s ­demise, were not made clear.
Mr Howson told the select committee in an earlier session that Carillion was owed ?200m by its Qatari partner Msheireb Properties – something that Msheireb denies.
Mr Stirling is expected to highlight a number of concerns that the company had about strategy, financial management and corporate governance at ­Carillion. Standard Life Aberdeen ­began selling its shares in the firm in 2015, but had at one point held almost 11pc of the company’s stock.
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