and the collapse of Carillion – an update
FEATURED PAPER
By Dr. Robert Chapman
United Kingdom
Introduction
This article is an update of the ‘Commentary’ uploaded by the PM World Journal in December 2018 (Vol. VII, Issue XII) on the collapse of Carillion, a prominent UK plc[1]. Carillion plc was wound up by the High Court on 15 January 2018 and the Official Receiver was appointed as the liquidator. At the time it represented one of the biggest corporate failures in the UK. The collapse left in its wake a cost to the UK taxpayer of approximately £148million and the liquidation of thirty-one of Carillion’s 198 companies[2]; a pension deficit of approximately £2.6 billion[3] ; 30,000 unpaid suppliers, thousands of unpaid sub-contractors; and the loss of over 2000 jobs. In summary, it caused widespread misery. Immediately after the collapse, based on their statements, it was clear government representatives strongly held view that the motivation of directors to preserve their high salaries, bonuses and expenses had been accompanied by a conscious and wanton disregard for shareholders, stakeholders, sub-contractors, suppliers and employees. It represented a monumental failing in risk management at all levels of the business.
Action by the UK Secretary of State
In what may be described as a dramatic move, on 12 January 2021, (following an investigation by the Official Receiver), the UK Insolvency Service, acting on behalf of the Secretary of State for Business, Energy and Industrial Strategy, (the Rt Hon Kwasi Kwarteng MP Kwasi Kwarteng), applied to the High Court for director disqualification orders against eight directors of Carillion (including former post holders). The investigation by the Official Receiver examined the conduct of each director individually and why they should be deemed unfit to be involved in the future management of a company. The application was made almost 3 years after the collapse of the business. The eight individuals named in the court proceedings included the former chairman, former chief executive, an ex-company director, 2 ex-finance directors and 3 boardroom non-executives. They could be banned for up to 15 years from being directors of firms based in the UK. While it was unusual for the Business Secretary to seek a ban against individuals who were not directors of Carillion at the time of its collapse, it is assumed that it was felt these directors were in a large part responsible for ‘sowing the seeds of destruction’ of the company. As reported in the media[4], Assistant General Secretary of the Unite Union, Gail Cartmail, said: “If executives and directors had reported honestly on Carillion’s financial predicament, many of those job losses could have been avoided”. The Secretary of State acted in accordance with his powers under the Company Directors Disqualification Act 1986. An insolvency spokesman said the application was made in the public interest. The Official Receiver has a duty to investigate the causes of the failure and the promotion, formation, business dealings and affairs of a company which has been wound up by the court. Other regulatory action is anticipated, with ongoing investigations by the Financial Conduct Authority and Financial Reporting Council.
Risk management failings
As reported in the press, on 15 January 2018, Carillion plc was declared insolvent and the Official Receiver started to liquidate its assets and contracts. The examination of company insolvencies provides valuable insights into failed corporate processes. These lessons are important not only for executives but also for construction managers, project managers, risk managers and advisers…
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How to cite this article: Chapman, R. J. (2021). Ineffective risk management and the collapse of Carillion-an update; PM World Journal, Vol. X, Issue III, March. Available online at https://pmworldlibrary.net/wp-content/uploads/2021/03/pmwj103-Mar2021-Chapman-ineffective-risk-management-and-collapse-of-carillion-an-update2.pdf
About the Author
Robert J. Chapman, PhD
United Kingdom
Dr. Robert Chapman is a Director of Dr Chapman and Associates Limited. He is the author of “Simple Tools and Techniques for Enterprise Risk Management, 2nd Edition”, which is recommended reading by the UK’s Institute of Risk Management. A discount of 30% can be obtained for the hardback version through the publishers John Wiley and Sons using the promotional code RMD30 and the URL: https://www.wiley.com/en-us/Simple+Tools+and+Techniques+for+Enterprise+Risk+Management %2C+2nd+Edition-p-9781119989974. Select country of residence in the tool bar. The discount is available from: 4 February 2021 to 28 February 2022
Dr. Chapman can be reached by email at riskappetite@outlook.com
To view other works by Robert Chapman, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/robert-j-chapman-phd/
[1] Carillion was a public limited company whose shares had been sold to the public on the stock exchange to raise finance through share capital.
[2] See the National Audit Office report dated June 2018 entitled “Investigation into the government’s handling of the collapse of Carillion”
[3] UK Government. Commons Select Committee. Pension scheme trustees questioned on Carillion. 30 January 2018. https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2017/carillion-pension-trustees-17-19/
[4] Independent (2021), “Government seeks to ban eight Carillion bosses from acting as company directors”, Ben Chapman. 17.1.2021
