The chairman of Carillion denied that an emergency Government loan to the company would be “a bailout” even as he warned ministers that a failure to support it could risk “the physical safety of employees and the members of the public they serve”.
Sky News has exclusively obtained an email sent by Philip Green to John Manzoni, the Cabinet Office permanent secretary, less than 48 hours before Carillion was placed into compulsory liquidation.
The message, which set out the construction group’s request for a “bridge through to a restructuring”, provides fresh evidence of the Carillion board’s efforts to avoid taking responsibility for the parlous state of its finances, even as it neared collapse.
In the email, dated 13 January, Mr Green said an emergency Government loan, thought to be for £10m, would be made alongside support from commercial lenders, while adding that “the group is simply asking for temporary support – not a permanent subsidy”.
But in a further comment which is certain to renew scrutiny of the competence and judgement of Carillion’s directors, Mr Green added that they were “increasingly confident that it will be possible to achieve a restructuring”.
“There has been tremendous progress over the last few weeks with key stakeholders, and we have every reason to expect that it will be possible to agree the commercial terms of a deal before the end of January,” he told Mr Manzoni.
The Carillion chairman’s confidence contrasts with evidence which has emerged over recent weeks as MPs on two Commons select committees have engaged in a detailed investigation of the former FTSE-100 company’s collapse.
Mr Green’s email has not been disclosed as part of the MPs’ inquiry.
Shareholders in Carillion, which was a key contractor on the HS2 high-speed rail link, have castigated its auditor, KPMG, and its directors for their mismanagement of the company’s finances.
The Pensions Regulator has been among the other stakeholders to face fierce criticism as it emerged that numerous opportunities to tackle its retirement deficit had been missed prior to the company running into trouble.
Carillion’s collapse, left 19,000 UK-based staff facing an uncertain future – with just over 8000 subsequently having their jobs salvaged under deals struck by the Official Receiver.
In a stark reminder of the fallout from one of the biggest corporate insolvencies for years, though, 2500 former Carillion employees this week had fresh doubts raised about their livelihoods when a Canadian company abandoned a deal to take on a portfolio of contracts.
Mr Green’s email during the weekend before Carillion’s collapse urged Mr Manzoni to accept the board’s request on the basis that an emergency loan would be far less costly to the public purse.
He said that some of Carillion’s contracts, including with the Prison and Probation Service, would need “adjustments”, but insisted that it would not “put back risk to the public sector, which would be clearly inappropriate”.
Mr Green went on to say that the “extremely modest cost to HM Government” of a successful restructuring of the company would “not be a bail-out”.
“There can be no basis for saying that Carillion – or its shareholders or management team – is being rewarded for failure or for past mistakes,” he wrote.
That assertion has already been challenged by major investors in the construction group who this week accused board members of being more preoccupied with their pay than securing the future of the company.
The request to Mr Manzoni went on to describe the potential consequences of Carillion being declared insolvent, saying that its board was reviewing the appropriateness of it continuing to trade.
Mr Green warned that if support from any stakeholder was withdrawn, directors would “conclude that there is no longer a reasonable prospect of avoiding insolvent liquidation”.
It emerged last weekend that a number of advisers were paid millions of pounds by Carillion just hours before Mr Green was submitting his final request to Mr Manzoni.
Mr Green said it had not been possible for Carillion to undertake “meaningful contingency planning to limit the impact of failure” because of the company’s “complexity” – a comment likely to stoke the debate about ‘too big to fail’ Government contractors.
“We are…deeply concerned that, if HM Government determines in the near term not to support Carillion, that will lead very rapidly into what is likely to be a very disorderly and value destructive insolvency process, with no real ability to manage the widespread loss of employment, operational continuity, the impact on our customers and suppliers, or (in the extreme) the physical safety of Carillion employees and the members of the public they serve,” Mr Green wrote.
“Any attempt to manage this process will come with enormous cost to HM Government, far exceeding the costs of continued funding for the business.”
The Carillion chairman ended what amounted to a final begging letter by referring to the “limited runway” available to the company, warning that “we cannot wait indefinitely”.
Mr Green and his boardroom colleagues are now facing profound questions about their management of a massive profit warning last July that was triggered by an £845m writedown of the value of certain key contracts.
Carillion held more than 450 Government contracts when it plunged into compulsory liquidation with total financial liabilities of more than £5bn – including a pension deficit that at its most extreme valuation stood at £2.6bn.
The vast scale of the company’s total indebtedness dwarfed its comparatively minuscule market capitalisation of just £61m when the Official Receiver was called in.
The Pension Protection Fund has now stepped in to provide compensation to 28,500 pension scheme members, with the total bill facing it likely to be up to £920m.
Several official investigations are now underway into Carillion’s collapse, involving the pensions watchdog, the Financial Conduct Authority, the accountancy regulator and the Insolvency Service.
Mr Green could not be reached for comment on Friday evening.