Carillion collapse: Govt liquidator to ask KPMG to pay £250 mn as penalty

Summary

  • Carillion’s liquidator alleged KPMG did not examine accounts of Carillion properly and should pay £250 million as a penalty.
  • The Lawyers of the Official Receiver has sent a pre-claim letter to KPMG before taking any action. 

Wolverhampton construction firm Carillion’s liquidator is preparing to sue KPMG International Limited for its role in its collapse in January 2018, owing around £7 billion to creditors. The government liquidator dealing with the collapse of Carillion has alleged that the accounting giant, which was its former auditor, did not examine accounts of Carillion properly and should pay £250 million as a penalty.

It is the first time that the British government’s liquidators have attempted to sue an audit firm to recover the losses from major insolvency like Carillion.

The official receiver, which is part of the government’s Insolvency Service, said that the claim against KPMG is an effort to collect as much money as possible and pay it back to those to which Carillion owed money at the time of the collapse.

Lawyers for the former FTSE100 company have sent a letter to KPMG before taking any action, warning that the accounting giant is expected to pay the claim related to Carillion’s liquidation in 2018.

According to media reports, the letter has the details that KPMG failed to examine Carillion’s accounts properly as the construction firm was putting forward a relatively healthier financial picture of itself rather than the reality, and KPMG could not figure it out.  The official receiver claimed that KPMG may be liable for £234.2 million in dividends, which is to be paid to its shareholders between 2014 and 2016, and advisory fees of £17 million for more than two years.

The claim was made public on 22 June as a part of the court application brought by the official receiver to access key KPMG audit documents. On its part, KPMG rejected the application stating that disclosing documents before the legal claim was filed was “unusual” and “unnecessary”, and Carillion’s liquidators should go by the company’s documents.

The official receiver of the Carillion is still working through the liquation process that dragging for three more years after the company collapsed. The official receiver is working with KPMG’s rival PricewaterhouseCoopers now.

According to Sky News, Litigation Capital Management is expected to fund this claim. Litigation Capital Management is an exchange-listed company that invests in potentially lucrative lawsuits.

Carillion was a British construction and facilities management services company before its liquidation in 2018. In 2017, the company faced a financial crisis and went into compulsory liquidation in January 2018. Carillion’s liquidation was the UK’s largest liquidation, with liabilities of almost £7 billion. The company’s insolvency caused project shutdowns and delays in the UK and overseas, with more than 3,000 employees losing their jobs. In addition, the liquidation of the company raised many questions on the management, the company’s auditor, the Financial Reporting Council, the Pensions Regulator, and others.

The construction giant was a high-profile company, which led the government to rely on its auditor. Later, this initiated a public debate regarding the degree of scrutiny that auditors should apply on the company accounts submitted by the directors.

The Carillion collapse cost around £162 million to taxpayers. It also impacted more than 450 major public-sector projects, including hospitals in Liverpool and Birmingham and the HS2 rail project.

The Financial Reporting Council investigated the KPMG’s audit work for Carillion between 2013 and 2017, initial findings of which is expected to be published this summer.


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