Carillion Used Suppliers to Borrow More, U.K. Lawmakers Say
(Bloomberg) -- Carillion Plc, the failed U.K. outsourcing company, has been criticized by lawmakers investigating its collapse for misclassifying borrowings.
As much as 498 million pounds ($674 million) of Carillion’s liabilities were incorrectly identified as “other creditors,” the U.K. Parliament Work and Pensions Committee said in a statement on Monday, citing estimates from Moody’s. Carillion’s board had discussed the issue in 2015, attributing mounting short-selling of the company’s shares to UBS Group AG broker research highlighting issues with its debt, the committee said.
The figure represents money owed to banks including Banco Santander SA as part of a government initiative to speed up payments to suppliers. Small and medium-sized businesses working for Carillion could present their invoices at the bank and get paid at a discount, rather than waiting as long as 120 days for Carillion to pay them directly. Carillion in turn owed the bank money and should have classified the rising amount as “borrowing” in its accounts, the 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,” Work and Pensions Committee Chairman Frank Field said in the statement.
Carillion, which had contracts in many projects from hospitals to high-speed rail, collapsed in January after failing to shore-up its finances and get a government bailout. The builder left debts of about 1.6 billion pounds, including bank loans and defaulted bonds, after a series of construction deals soured.
Santander’s outstanding exposure to Carillion from the supplier invoices is 91 million pounds, the committee said. That’s in addition to losses Santander has taken on other loans to the company.
The committee’s report on Carillion’s collapse along with recommendations will be published Wednesday
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