ARTICLE
29 July 2022

FCA Enforcement Action – Company Censured And Executive Directors Fined For Breaches Of Listing Rules And MAR

The Financial Conduct Authority (FCA) has censured Carillion and provisionally fined three of the company's former executive directors for breaches of the Listing Rules...
United Kingdom Finance and Banking

The Financial Conduct Authority (FCA) has  censured Carillion and  provisionally fined three of the company's former executive directors for breaches of the Listing Rules and UK Market Abuse Regulation (MAR).

Carillion was a construction, project finance and support services business which went into liquidation in January 2018.  In July 2017, Carillion had announced a provision of £845 million, of which £375 million related to projects in Carillion Construction Services (CCS). The company's share price fell by 39% on the day of the announcement and by 70% within three days. The provision effectively wiped-out Carillion's profits over the previous six years. Its announcements in the period prior to that announcement, including a trading update in December 2016, its financial results in March 2017 and its AGM statement in May 2017, had given no indication that such a provision was likely to be required.

The FCA says that overly aggressive contract accounting judgements had been applied in order to maintain CCS's reported revenues and profitability. The FCA also said that the deterioration in financial performance had been reported to the executive directors but they did not disclose it to the board or audit committee.

The FCA concluded that Carillion breached the following provisions in the period up to the announcement on 10 July 2017, and that the executive directors were knowingly concerned in its breaches:

  • Listing Principle 1 (procedures, systems and controls) by failing to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations under the Listing Rules. The FCA says that shortcomings included Carillion's financial reporting of its construction contracts, a lack of awareness of the company's internal policies, a lack of proper records and a failure to provide sufficient information to the board and audit committee;
  • Premium Listing Principle 2 (acting with integrity) by failing to act with integrity towards its holders and potential holders of its premium listed shares;
  • Listing Rule 1.3.3R (misleading information must not be published) by failing to take reasonable care to ensure that its announcements were not misleading, false or deceptive and did not omit anything likely to affect the import of the information; and
  • Article 15 of MAR (market manipulation) by disseminating information in its 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.

The FCA has not fined Carillion as it is insolvent and in liquidation; it otherwise would have been fined £37.9 million. The fines for the executive directors are £397,800 for the former chief executive officer, £318,000 for the former finance director who was in office until December 2016 and £154,400 for the subsequent finance director. The directors are appealing against the FCA's decision.

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