Fallen construction giant Carillion “ripped off” small contractors with an early payment scheme designed to “hide the true extent of its massive debt”, MPs have claimed.
The Commons’ business and work and pensions committees have published evidence by Santander, the bank which ran Carillion’s Early Payment Facility (EPF), ahead of a joint report into the firm’s collapse due to be released on Wednesday.
Carillion contractors were given standard payment terms of 120 days, but we able to receive cash earlier under the EPF by accepting a smaller amount.
Two major credit ratings agencies, Moody's and Standard & Poor's, say the firm’s accounting for their EPF concealed its true level of borrowing from creditors, according to the committees.
“Carillion displayed utter contempt for its suppliers, many of them the small businesses that are the lifeblood of the UK’s economy,” work and pensions committee chair Frank Field said.
“The company used its suppliers as a line of credit to shore up its fragile balance sheet, then in another of its accounting tricks ‘reclassified’ this borrowing to hide the true extent of its massive debt.
“This knocks down for good the stance of the Carillion board that whingeing and blaming others can be any defence.”
Carillion board minutes from April 2015 refer to "disappointing" analysis by UBS that had factored both the pension deficit and the EPF situation into the company’s debt position.
Minutes from a meeting the following month state shorting of Carillion’s shares was up significantly, noting that the "bulk had followed the UBS note in March".
Santander finally withdrew the discounted early payment facility in December 2017, weeks before the company was forced into liquidation, a move Carillion blamed in part for its eventual demise.
“The collapse of Carillion left small businesses and sub-contractors out-of-pocket with many left unpaid for months and facing ruin,” business committee chair Rachel Reeves said.
“It’s a bitter irony that while Carillion were fully signed up to the government’s prompt payment code, they were making their suppliers hang on for 120 days or more to be paid.
“Carillion’s early payment facility ripped off their suppliers, forcing them to accept a cut in what they were owed, and was a blatant attempt by Carillion management to prop up their failing business model”.
Outsourcing and construction firm Carillion had employed more than 43,000 people, including 20,000 in the UK, before it was forced to enter liquidation in January amid mounting debts.
Bosses have previously come under fire from MPs over claims they expected a multi-million pound taxpayer bailout days before the firm went bust leaving hundreds of public sector contracts in turmoil.
