Carillion Share Discussion Threads

[fenners66] 13/10/2023 23:42

Its a huge flaw in the audit process that no one has ever found a definition that binds the audit to the wider world.
We all look at an audit "name" and want to believe that the accounts presented are true and fair view - they charge enough and in the case of large enough firms their use is statutory so why is it beyond the wit of man to have some sort of wider liability ?

A little bit like car insurance - you have to buy it even if its only 3rd party and you may get no benefit from it - the claim could be paid to anyone...

I guess the idea that no one else can rely on an audit report is one of the reasons why the made them optional for businesses up to ,(what is it ?) £10m turnover. Which is setting the bar far too high imo.

[jaknife] 13/10/2023 17:35

"A shame that the auditor doesn't admit any liability to shareholders."

The auditor can't admit liability to shareholders. The auditor has no contractual relationship with shareholders and owes no duties directly to the shareholders. If you read the detail of a UK audit report then it will typical include wording similar to the following:

"This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed."

This is not a disclaimer as such but more a statement of fact as to how the law works in the UK. Hence, to the extent that the auditor owes compensation, then they owe that directly to the Company. Whether any of that money then goes to shareholders or not depends on whether the company is solvent or not.

JakNife

[marktime1231] 13/10/2023 16:21

I wasn't aware nor am I particularly bothered whether you were ever in or jumped ship, or were counselling from the sidelines, back then I was using another board. From memory there was a pretty even and heated contest on II between those pro while the share price was still in the £2's and those against. After the bubble burst from 10 July announcement onwards a number of posters joined in with the confidence of hindsight to say this had been seen coming, it was inevitable, how silly we had been to hold on etc. I'm not sure which group you fell in to, but I can imagine you rubbing salt in to people's wounds, no doubt to say everyone who was caught out was naive. Some people called it right, whether luck or judgement.

I am happy to admit I made a big mistake, one of a number of bad investments over the years. CLLN was a deliberate dividend trap and I was suckered. All punters make bad judgements or get unlucky, just look at the naked trader for examples, maybe even you? I have done my best since then to learn some lessons, including at times digging deep past the rns headlines in to the detail of accounts. CLLN (Phil Oakley) taught us to look at the average debt being carried, in concert with movements in receivables and payables, rather than just the headline year end position. Even so, serious debt problems and project difficulties at CLLN weren't on the books, they were deliberately concealed at every level of the organisation so that even the (complacent) auditor's attention was not drawn to them. I held on because there was a chance that the known problems were balanced by the positive signals.

Anyway, it has long flowed under the bridge and out to sea.

On the topic of compensation, I note that KPMG settled a £1B+ suit from CLLN liquidators pwc was it last year even before FRC concluded their investigation. So creditors got some money back. A shame that the auditor doesn't admit any liability to shareholders. And we should be allowed to carry losses forward until we need them.

[fenners66] 13/10/2023 06:13

marktime1231 - if you read this board at the time there were a few of us making very pertinent points
I read in detail the accounts and RNS's for about 2 years (maybe less) and concluded and reported that the statements and accounts did not add up.
I would have been surprised had they survived .

[marktime1231] 12/10/2023 17:20

The former directors have all faced hefty fines, determined partly on their ability to pay, they do not have the hundreds of millions owed to shareholders.

Not advocating a stock compensation fund, just observing that there isn't one like FSCS or PPF. It would be something though, as a suggestion, if we were entitled to carry the loss forward in perpetuity instead of just three years, to offset CGT on any gains.

As I recall there were just two notable divesters with foresight, the former financial analyst turned blogger whose name escapes me sorry to him who spotted hidden debt and LGIM or was it SLI spooked by the shorters. Almost everyone else was fooled, conned. The government and tier one companies were still awarding it contracts, it was refinancing in international debt markets, over 60% of stock was held by long institutional investors. Call it naive, in hindsight, if you like.

What we did get was a lesson. Don't always believe what the board tell you, even when audited, even when respected watchers are calling it a bargain. When something looks too good to be true, sometimes/often it is. Be more challenging and critical of what gets published.

* edit - it was Phil Oakley

[fenners66] 12/10/2023 16:03

JakNife - which leaves the only redress for naive shareholders - to actually have taken some notice of what was written on this board over the last couple of years of Carillion's existence - that it did not add up.

[jaknife] 12/10/2023 13:33

"There is no protection fund in case a stock goes bust,"

Why should there be? If people got compensated when businesses went bust then you'd have a whole army of investors throwing cash at speculative projects knowing that if it all went wrong then somebody else would reimburse their losses.

As to suing KPMG, or the directors, you should do some research on the principle of "locus standi". Shareholders do not have the appropriate "locus standi" to sue KPMG who owe their duties to the company directly and NOT to individual shareholders. The same comment applies to directors. You have no direct contract with the directors and the directors owe you no duties as their obligations are to the company.

You could do some quick research on t'net and you should be able to quickly ascertain the above. However, the normal thing that happens is that a load of shareholders get together and form a shareholder action group ("SHAG"). They raise some legal fees and end up blowing their money on a legal opinion that says "You don't have the necessary locus standi". I guess at least they find new friends to share their gripe with?!

JakNife

[fenners66] 12/10/2023 13:10

"Former directors are broke" - are they ?
I hope there is evidence of that as I suspect they would naturally make sure that could not happen.
What about pension funds etc ?

[marktime1231] 12/10/2023 13:04

There is no protection fund in case a stock goes bust, so where do you get compensation. The company and former directors are broke. We could sue KPMG who do have some money, but even while they are found guilty of "exceptional failures" they are not fundamentally responsible for the mismanagement and lies so compensation would be trivial pennies in the pound. And who is going to stump up and pay for the years of legal wrangling, such as the specious argument that the auditor has no liability towards shareholders because its report is for the board.

Reeves who chaired with gusto the committee enquiry in to the CLLN collapse and promised to make them pay, as she is now promising to make covid fraudsters etc pay, is not at all interested in compensation for the capitalist investors who gambled and lost.

Where does the record FRC £21M fine of KPMG go? (HM Treasury).

[cc2014] 12/10/2023 12:23

KPMG fined £21m. Seems not enough to me.

[uncle_sam] 09/10/2023 19:35

Agreed. Criminal prosecution should be mandated, as should be financial restitution. Alas, we can't even get a decent class action suit here.

[porsche boxster] 06/10/2023 08:43

The disqualification periods are meaningless IMO.
There should be criminal prosecutions for Fraud.

[cc2014] 17/8/2022 10:00

Thanks for this Fenners.

The fines are quite substantial compared with the usual non-action or petty fines we usually see.

I cannot help but think though that the level of the fine compared with their personal gain or indeed by reference to their statutory responsibilities is still very low.


Perhaps not so much that the FCA has grown some teeth but more it's grown some baby teeth and has teething pains.

[fenners66] 29/7/2022 09:52

From the DM


"Three former Carillion directors have been fined almost £900,000 over the collapse of the construction giant.

The City watchdog fined former chief executive Richard Howson £397,800 and ex-finance directors Richard Adam and Zafar Khan received penalties of £318,000 and £154,400 respectively.

In the two years leading up to the collapse, Carillion paid out £250m in dividends and consultancy fees, despite questions over its finances. Howson, Adam and Khan were responsible for financial statements that were 'misleadingly positive' ahead of Carillion's collapse, the FCA said"

If I recall correctly I was questioning the same things in the year+ before the company went bust......

[fenners66] 20/1/2022 13:20

The Partner concerned has to be qualified - so when does the institute strike him off?

[demark] 20/1/2022 12:11

with Carillion ...KPMG forged and fabricated documents and spreadsheets...

i also read last week from the financial press that ...
with Conviviality ....KPMG did similar things.....

The Partner concerned from KPMG was fined £110k that was reduced to £85k
as he co-operated with the prosecutors, and he is still with KPMG,I understand.

Forgery and fabrication by the auditors are criminal
offence to my limited legal knowledge!

[fenners66] 13/1/2022 11:29

Arthur Anderson moment ?

[cc2014] 13/1/2022 11:04

KPMG has admitted for the first time that it misled regulators over the audit of collapsed outsourcer Carillion, as a tribunal heard that its accountants allegedly forged documents to dupe inspectors.

Jon Holt, the chief executive of KPMG UK, apologised for the firm's behaviour in the run-up to the failure of Carillion, which was given a clean bill of health before collapsing under a £7bn debt pile in early 2018.

He said: “It is clear to me that misconduct has occurred and that our regulator was misled.”

The admission came after the Financial Reporting Council (FRC) accused auditors at KPMG of creating “forged” and “fabricated” documents in an attempt to mislead inspectors reviewing the firm’s audits of Carillion and Regenersis, another outsourcer.

Mr Holt added: "The misconduct that this tribunal will hear about over the coming weeks is disturbing and upsetting for me and for my colleagues.

“This misconduct is a violation of our processes and clearly against our values. It is unacceptable, we do not tolerate or condone it in any way, and I am very sorry that it occurred in our firm.”

Article continues

[cc2014] 17/11/2020 09:36

"The FCA has indicated that it is proposing a public censure in relation to Carillion, rather than a financial penalty."


So, a publick ticking off, a few press articles and a bit of embarrassment at the golf club in return for misleading investors out of hundreds of millions.

It will never cease whilst their is effectively no penalty.

[fenners66] 16/11/2020 17:34

But what action will this result in?
A 2 page report or summary , but so what .
Public censure .... and ?
Fine the directors responsible and bar them from holding similar positions in the future I would say.
Many people will have lost a fortune with the Carillion debacle.
Either through their own direct investment or through pension schemes and the like - so they have had many victims.

No doubt there will be a reluctance to actually do anything as this might lead to legal challenge....etc.