The collapse of Carillion plc and the final FCA fine issued

The collapse of Carillion in January 2018 sent shockwaves through the UK construction industry.  Last month, the Financial Conduct Authority (the FCA) published Final Notices against two former finance directors of Carillion, following their decision to withdraw appeals against the regulator's enforcement action. The directors were fined £232,000 and £138,000 respectively, for their failures to alert the Board and audit committee of Carillion’s serious financial troubles, resulting in misleading statements being issued by the company. 

The case has shone a spotlight once again on directors’ obligations, accountability and their personal liability, should it all go wrong. 

The £845m Bombshell

In July 2017, Carillion announced an £845 million provision that effectively obliterated six years' worth of profits. Shares plummeted 39% on the day of the announcement and a staggering 70% within just three days.

None of the company's prior disclosures had given investors any hint that such a huge provision was on the horizon. The FCA was of the view that the deterioration in financial performance had been reported to the executive directors but that this critical information was not disclosed to the board or audit committee.

In June 2022, the FCA concluded that Carillion had breached multiple regulatory requirements, including; 

• Listing Principle 1 (the obligation to maintain adequate procedures and controls);
• Premium Listing Principle 2 (now Listing Principle 4) the duty to act with integrity;
• Listing Rule 1.3.3R (the prohibition on publishing misleading information); and
• Article 15 of MAR (the ban on market manipulation). 

Three executive directors were found to be knowingly concerned in these breaches.

Personal Liability 

In recognition of their cooperation with the FCA and upon the withdrawal of their appeals, two directors received Final Notices and reduced fines. It should of course be noted that the latter are the findings of the FCA and are not judicial findings.

The third director’s fine, whilst reduced from the provisional figure, is indisputably still significant and acts as a stark reminder of the critical importance of directors’ responsibilities and that regulators will pursue those responsible, even years after the dust has settled. Critically, culpability does not turn on whether the failure that occurred was outside the scope of the individual director’s primary responsibilities.

Steve Smart, executive director of enforcement and market oversight at the FCA, said:

'Carillion’s failure was significant. Jobs were lost, public sector projects put at risk and investors, who trusted the company to give them accurate information, suffered large scale losses. That’s why the FCA worked diligently to hold the company and its senior leaders to account.' 

Whilst the circumstances in Carillion were arguably extreme, it throws the consequences and personal liability of directors back into the spotlight. The critical importance of diligence, safeguarding the interests of shareholders and stakeholders and ensuring compliance with legal and regulatory requirements remains paramount.