In January 2018, the headlines of the financial services press were dominated by the fall of the construction giant Carillion, which the Financial Conduct Authority (FCA) considered to have breached multiple divisions between July 01, 2016 and July 10, 2017. Today, the FCA has published its decision notices for Carillion plc (in liquidation) and three former executive directors of the firm.
The three individuals have referred their respective decision notices to the Upper Tribunal where they will each present their cases. The FCA noted that any findings in the individuals’ decision notices are therefore provisional, reflecting the FCA’s belief regarding what occurred and how it believes their behaviour should be characterised.
“Carillion has not referred its decision notice to the Upper Tribunal,” the FCA revealed in a Press release. “The FCA has imposed a public censure on Carillion, rather than a financial penalty, given the firm is insolvent and in liquidation. Were it not for Carillion’s financial circumstances, the FCA would have imposed a financial penalty of £37,910,000.”
In the case of each of the three individuals’ decision notices, the FCA has decided to fine Mr Howson (former CEO) £397,800, Mr Adam (former finance director) £318,000 and Mr Khan (former finance director) £154,400.
It will be the determination of the Upper Tribunal whether or not the FCA’s decisions against the three individuals will be upheld, and whether any other actions should be taken by the FCA. The decision of the Upper Tribunal will be made public on its website following a hearing. Accordingly, the FCA stated, the action outlined in the three individuals’ decision notices has no effect pending the determination of the cases by the Upper Tribunal.
The FCA believes that Carillion recklessly published misleading announcements on December 07, 2016, March 01, 2017, and May 03, 2017, that did not accurately or fully disclose the true financial performance of Carillion. Those announcements made misleadingly positive statements about Carillion’s financial performance generally, the watchdog said, and concerning its UK construction business in particular.
The regulator noted that the announcements did not reflect “significant deteriorations” in the expected financial performance of Carillion’s UK construction business and the increasing financial risks associated with it. It is the view of the FCA that Carillion’s systems, procedures and controls were not sufficiently robust to ensure that contract accounting judgements made in its UK construction business were appropriately made, recorded and reported internally to the board and the audit committee.
In the cases of Howsen, Adam and Khan, the FCA considers that each acted recklessly and were consciously concerned with Carillion’s contraventions. In the FCA’s view, Howson, Adam and Khan were each aware of the deteriorating expected financial performance within Carillion’s UK construction business, the regulator said, as well as the increasing financial risks associated with it.
The three individuals concerned failed to ensure that the Carillion announcements they were responsible for accurately and fully reflected these concerns, the FCA stated. In addition, despite their awareness of these deteriorations and increasing risks, they failed to make the board and the audit committee aware of them, which resulted in a lack of proper oversight.
Commenting on the update, Mark Steward, executive director of enforcement and market oversight, said: “Carillion failed to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations under the Listing Rules. As a result its true financial position remained hidden over many months and the effects of its collapse were aggravated, causing substantial harm to shareholders and creditors.
“This is market abuse, and as damaging to market integrity as insider dealing and manipulation, though not often described in this way. It should be. The FCA’s decisions on the three senior individuals whom the FCA alleges were involved in these failures will now be reviewed in the Upper Tribunal.”
