Carillion directors “trampled over the rights” of the firm’s pension scheme members, according to Work and Pensions Committee chair, Frank Field.
Ahead of the joint committee hearing in parliament today (6 February 2018), documents released by the Work and Pensions Committee said that “historically, Carillion has subordinated the pension schemes to other demands on cash flow”, particularly debt and a “progressive dividend policy”.
A letter from Carillion's pensions covenant assessors, Gazelle Corporate Finance (GCF), in May 2017, said that the group is “approaching maximum leverage”, with the company “paying shareholder distributions at a level which is higher than the total operating needs of the business”.
Field said: “It is clear that the directors of this company trampled over the rights of their tens of thousands of pension scheme members. Their main focus was paying out fat dividends and bonuses that exceeded their cash flow, all the while stiffing their suppliers, borrowing mega sums of money, and allowing their liabilities and pension deficit to balloon to ruinous levels.
“Clear warning signs were evident several years ago in the assessments of the company’s commitment to its pension schemes.”
GCF delivered warning signs to the trustee board as early as a 2012 in which “based on long-term business risks”, it would “expect TPR to challenge a recovery plan which extends beyond the 10 year trigger point”, which the committee states it did not do.
In April 2016, a covenant assessment noted that Carillion was one of the most shorted stocks in the market raising speculation around the prospect of the business and highlighting the “historically low priority given to pension deficit repair in the corporate allocation policy”.
Last week, Workers union Unison called for a “proper investigation” into major Carillion shareholders including BlackRock, to find out if worker’s pensions were used to bet on the firm’s share price falling, just days before Carillion collapsed.
Carillion directors are facing questions from the Business, Energy and Industrial Strategy Committee and Work and Pensions Committee today.