1. Companies collapse. It is a standard part of the business life cycle. The demise of a major company does not in itself warrant a parliamentary inquiry. Carillion, a major UK multinational construction and facilities management company which entered compulsory liquidation in January 2018, was, however, a very unusual case:
• Carillion's collapse was sudden and from a publicly-stated position of strength. It went into liquidation in January 2018 with liabilities of nearly £7 billion and just £29 million in cash. Yet it had paid a record dividend of £79 million and large bonuses to senior executives for performance in 2016.
• The company's 2016 accounts, published in March 2017, were certified true and fair by its auditor, KPMG. In July 2017, the company issued a profit warning which announced a reduction of £845 million in the value of its contracts. This was increased to £1,045 million in September 2017, the exact value of the previous seven years' profits combined.
• Carillion left a pensions liability of around £2.6 billion and its schemes are set to be the largest ever hit on the Pension Protection Fund (PPF), which is partfunded by a levy on other pension schemes.
• Carillion also owed around £2 billion to its 30,000 suppliers, sub-contractors and other short-term creditors, of whom it was a notorious late payer. Like the pension schemes, they will get little back from the liquidation.
• Carillion was a major strategic supplier to the UK public sector and had around 450 construction and service contracts across government.
• The Government has committed an initial £150 million of public funds to ensure continuity of public services provided by Carillion.
Carillion was no ordinary company, and no ordinary collapse.
2. We chose to work together on Carillion, as our predecessor Committees did on BHS, because it is impossible to consider the management of the pension schemes without considering that of their sponsor company. Our inquiry did not consider Government decisions to award major contracts to Carillion. Those matters will be considered by the National Audit Office, the Public Accounts Committee and the Public Administration and Constitutional Affairs Committee in subsequent reports. We have also taken steps to ensure that we have not interfered with official investigations being undertaken by the Insolvency Service (IS), Financial Reporting Council (FRC), Financial Conduct Authority (FCA) and the Pensions Regulator (TPR). Our inquiry enabled the reasons for the collapse of Carillion, and its lessons for Government policy, to be considered in public. This report sets out our findings from that work. It is split into two parts. First, we consider the business and the reasons for its failure, together with the failure of various checks and balances on corporate conduct. Second, we consider the wider policy implications of the case.
3. Over the course of the inquiry, we took evidence from Carillion's regulators, its investors, its advisors, its pension trustees, and from Carillion's directors during its final years. We also heard from the Secretary of State for Work and Pensions and the Secretary of State for Business, Energy and Industrial Strategy to examine the Government's long-term response to the collapse of the company. In addition to oral evidence and correspondence with Carillion's stakeholders, we sought and received minutes and papers of Carillion's board and its committees from the Official Receiver, many of which we have published as part of the inquiry. We are grateful to the Official Receiver and his staff for their work in providing these documents to aid our scrutiny. Similarly, the pension scheme trustees were particularly forthcoming in response to our requests for documents. Our work was aided by Gabriel Moss QC and Hannah Thornley, both of South Square Chambers, and Professor Prem Sikka, who have acted as our Specialist Advisers. We are very grateful for their work.