Carillion used its suppliers to “prop up a failing business model” is the damning conclusion of two influential Parliamentary committees, which ahead of the launch of the final report of their inquiry into the collapse of Carillion has published evidence from Santander, the bank which operated Carillion’s Early Payment Facility.
“Carillion displayed utter contempt for its suppliers, many of them the small businesses that are the lifeblood of the UK’s economy.” said Frank Field MP, Chair of the Work and Pensions Committee, which along with BEIS Committees are looking into the collapse of the construction and facilities group.
He added: “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 “notorious late payers”
Despite being signatories of the Prompt Payment Code, Carillion were “notorious late payers” who forced standard payment terms of 120 days on its suppliers. The EPF—also known as “reverse factoring” and “supply chain financing”—allowed suppliers to be paid earlier: at the price of taking a discounted payment.
Two major credit ratings agencies, Moody’s and Standard & Poor’s, have claimed that Carillion’s accounting for their EPF concealed its true level of borrowing from financial creditors. They argue the EPF structure meant Carillion had a financial liability to the banks that should have been presented in the annual account as “borrowing”. Instead Carillion choose to present these as liabilities to “other creditors”. Moody’s claim that as much as £498 million was misclassified as a result.
The bank’s “outstanding exposure to Carillion in relation to the invoices purchased from suppliers under the programme is £91 million”—this amount is “separate from Santander’s committed exposures to Carillion for which we have taken significant additional bad debt provisions.”
Rachel Reeves MP, Chair of the BEIS Committee, said: “The collapse of Carillion left small businesses and sub-contractors out-of-pocket with many left unpaid for months and facing ruin. 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.”
RICS is hosting a special debate on the Carillion collapse, taking place at Facilities Show next month and is inviting people to join the conversation.
Facilities Show Keynote Theatre, 3:00 – 3:45pm
- Sustainable procurement in FM
- Business ethics
- Policy and the role of government
We will be welcoming:
Global Property Standards Director
Chief Executive Officer
For more information and to join the debate click here.