Biggest asset on Carillion’s books was ‘goodwill’, MPs hear
MPs questioned regulators about why signals were not spotted before the construction giant went into liquidation.
MPs have expressed surprise that the biggest asset on the books of collapsed construction giant Carillion was £1.57 billion of “goodwill”.
The chairs of two Parliamentary select committees questioned the head of an independent regulator on whether it was good practice to have so much goodwill on the balance sheet.
Stephen Haddrill, chief executive of the Financial Reporting Council (FRC) said it was not, but he added: “It’s not untypical.”
Mr Haddrill came under fierce questioning from members of the Work and Pensions and Business Committees on why something was not done to prevent the spectacular collapse of Carillion.
He revealed the FRC had been “actively monitoring” Carillion for six months before the company went into liquidation, but it was not public knowledge and no public statements were made.
The @CommonsBEIS @CommonsWorkPen hearing into the collapse has just started with the first panel Stephen Haddrill, Chief Executive Officer @FRCnews and Sarah Albon, Chief Executive Officer @insolvencygovuk Watch live: https://t.co/fYOimjhbyC— Business, Energy and Industrial Strategy Committee (@CommonsBEIS) January 30, 2018
Rachel Reeves, who chairs the Business Committee, said investors should have the right to know a company was being monitored, but Mr Haddrill said there was a system of confidentiality clauses in place.
He said the requirement in legislation for confidentiality should be reviewed.
The MPs also criticised the lack of competition among top auditors, with four big firms dominating the sector.
Frank Field, who chairs the Work and Pensions Committee, said there was an “oligarchy” in the sector and asked whether the committee should be recommending that the four firms should be broken up.
He added that two of the previous three finance directors at Carillion came from KPMG.
“Did that not send a warning to you? They are all mates. Four companies dominate the scene.”
Mr Field said he did not know what “goodwill” meant, noting the item disappears once a company is in trouble.
Ms Reeves said the £1.57 billion figure was “surprising”, adding: “It was only goodwill that kept the assets high.”
Mr Haddrill said there was an “enormous” cause for concern about how the company was governed, adding: “We all look at what has happened with a degree of incredulity.
“We need to look on what basis directors were making decisions.”
Mr Haddrill denied the FRC was “toothless”, saying it was one of the most effective regulators in the world.
Sarah Albon, chief executive of the Insolvency Service, said Carillion was made up of 326 companies, including 199 in the UK, with a total of 169 directors across the group.
The FRC has launched an investigation into KPMG’s audits of Carillion.
Robin Ellison, chairman of trustees of Carillion’s pension scheme, said the Pensions Regulator had been attending its meetings for six or seven years and had been taking an extra interest in it for a decade.
Mr Ellison said: “There was a deficit in the pension scheme pretty much from when I became involved in 2007.
“The question was how quickly could they discharge that deficit.”
He added: “The regulator has been involved pretty much from the beginning. My understanding was that Carillion was considered one of those schemes they wanted to keep any eye on pretty much early on.”
Trustees faced a dilemma about how to protect the fund and the company, he said.
“We have a dilemma – in one way we want as much money as we can but on the other hand we don’t want to destroy the company. We do our best.”
Mr Ellison insisted the trustees had done the best they could with the information they had at the time.
“I don’t think there’s anything more, even in hindsight, we could have done to persuade higher contributions to be paid,” he said.