Collapsed outsourcer Carillion hid its debt and used late payment to its suppliers to prop up its balance sheet, MPs have said today.
Ahead of the launch of the final report into Carillion’s collapse on Wednesday, the work and pensions and business, energy & industrial strategy (BEIS) committees are today publishing evidence from bank Santander which operated the outsourcer's early payment facility (EPF).
Former bosses could also face an inquiry and even director ban under the committee’s recommendations, Sky News reported last night.
According to the committees, Carillion was a “notorious” late payer which made its suppliers agree to standard 120 day payment terms.
The EPF allowed suppliers to be paid earlier in exchange for taking a discounted payment.
Credit agencies Standard & Poor’s and Moody’s have argued that Carillion’s accounting for the EPF helped conceal the company’s true level of borrowing from its creditors.
The pair said the EPF’s structure meant that Carillion had a liability which should have been included in its accounts as “borrowing” rather than “other creditors”.
Moody’s said that as much as £498m was misclassified as a result of Carillion’s accounting practices.
Santander withdrew the EPF in December 2017, a factor Carillion’s bosses have blamed for the company’s January collapse.
Santander said that it withdrew the facility because of a “lack of progress” with Carillion’s restructuring plan which it had provided bridge financing for.
The bank's exposure to Carillion in connection with invoices purchased from suppliers under the EPF is £91m.
It said it had also “taken significant additional bad debt provisions” for Carillion separate to the EPF.
Last year impairments at Santander UK tripled to £203m, mainly reflecting loans to Carillion.
In a statement today Santander said: “Following the company informing the lending banks in December of a material additional funding requirement, we removed the automatic payment service on the company’s supply chain finance but left the uncommitted facility in place.”
It said this gave it “greater oversight of the invoices and liability before paying”.
“We believe, given the circumstances, this was a prudent step. It allowed us to enter into constructive dialogue with Carillion to understand its funding requirements,” it concluded.
Rachel Reeves MP, chair of the BEIS committee said: “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.”