Carillion slammed over late payments and hidden debt
Carillion has been branded a ‘notorious late payer’, despite signing up to the government’s prompt payment code, in evidence provided to the work and pensions and BEIS select committees’ inquiry into the collapsed outsourcer, reports Pat Sweet
14 May 2018
There are also suggestions that its use of supply chain financing hid almost £500m of borrowings.
Ahead of its final report due later this week, the joint committee has published evidence from Santander, the bank which operated Carillion’s early payment facility (EPF).
The committee said Carillion forced standard payment terms of 120 days on its suppliers. The early payment facility - also known as ‘reverse factoring’ and ‘supply chain financing’ - allowed suppliers to be paid earlier, at the price of taking a discounted payment.
According to the information provided to MPs by Santander, a supplier could choose to sell all of its confirmed invoices to Santander at a discount (the auto-discounting service) or to offer to sell to Santander, at a discount, specific confirmed invoices at any point up until the days before the due date of the invoice (the ad hoc discounting service).
During the course of 2017 around 270 Carillion suppliers were actively participating in the programme, of which 109 were using the auto-discounting service.
Rachel Reeves, chair of the BEIS committee, said: ‘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.’
The joint committee pointed out that two 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.
The agencies argued 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 £498m was misclassified as a result.
Santander told the committee it had finally withdrawn the discounted early payment facility in December 2017, highlighting the ‘lack of progress with the restructuring plan’ which it had asked from Carillion as among the reasons. The committee said Carillion’s directors had previously suggested that the sudden withdrawal of banking finance was one of the reasons for the company’s collapse.
Frank Field, chair of the work and pensions committee, said: ‘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.’
Report by Pat Sweet