In July, the FCA published its decision notices issued in June to Carillion and three former executive directors following respective warning notices issued in September 2020. These were with respect to proposed action by the FCA in light of Carillion’s contravention of the Market Abuse Regulation and Listing Rules in 2016 and 2017. The three executive directors had referred their decision notices to the Upper Tribunal, and therefore any findings and/or sanctions made in the FCA’s notices are provisional and subject to the Upper Tribunal’s eventual determination.
In 2016 and 2017, prior to Carillion’s entry into liquidation in January 2018, Carillion had published announcements (in December 2016, March 2017 and May 2017) containing misleading and/or inaccurate statements as to the company’s financial health.
The FCA found that these statements, which did not convey certain significant and known financial deteriorations, had been recklessly published. Further, the FCA found that Carillion’s systems, procedures and controls were inadequate and did not sufficiently enable robust accounting judgements to be made, recorded and reported to the company’s board and audit committee. The FCA noted that, were it not for the fact that Carillion is in liquidation (such that a financial penalty would be borne by Carillion’s creditors), it would have imposed a fine of £37,910,000.
Given Carillion’s circumstances, the FCA has instead publicly censured the company. Carillion did not refer its notice to the Upper Tribunal. The FCA found that Carillion breached the following:
Article 15 of the Market Abuse Regulation (prohibition of market manipulation): Carillion disseminated information in the announcements that gave false or misleading signals as to the value of its shares in circumstances where it ought to have known that the information was false or misleading.
Listing Rule 1.3.3R (misleading information must not be published): Carillion failed to take reasonable care to ensure the positive announcements it published about the financial performance of its general business and its UK construction business were not misleading, false or deceptive and did not omit anything likely to affect the import of the information.
Listing Principle 1 (procedures, systems and controls): Carillion failed to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its Listing Rule obligations.
Premium Listing Principle 2 (acting with integrity): Carillion did not act with integrity towards its shareholders and potential shareholders. The FCA found that the three executive directors recklessly and knowingly partook in Carillion’s breaches. It has issued the following sanctions (subject to the Upper Tribunal’s review): former chief executive, Richard Howson, fined £397,800; former finance director, Richard Adam, fined £318,000; and former finance director, Zafar Khan, fined £154,400.
Consider whether internal processes, procedures and systems need to be proactively reviewed and strengthened in order to ensure robust reporting lines. This is all the more important in light of the incoming reforms to the accounting and audit regimes in the UK, as FCA and ARGA scrutiny will only increase in the pursuit of avoiding a repeat of the Carillion case.
Click here for the Decision Notice: Carillion plc.
Click here for the Decision Notice: Richard John Howson.
Click here for the Decision Notice: Richard Adam.
Click here for the Decision Notice: Zafar Khan.
This article was produced in association with White & Case UK’s Public Company Advisory team. Read their original alert here.