mars 31, 2023


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Official recipient files £1 billion claim against auditor of collapsed construction firm Carillion | Business News

The official recipient is filing a legal claim against the auditors of Carillion, the collapsed construction giant, which could target up to £1 billion in damages.

Sky News understands that liquidators from the former component of the FTSE-100 index filed a claim form against KPMG on Friday – a move that gives the plaintiff four months to provide more details of his case.

City sources said the measure could become one of Britain’s largest against an accounting firm.

Official details of the claim document are not expected to be provided by the OR for several weeks.

It is understood OR is tracking £230m of losses in the form of dividends which it argues should never have been paid by Carillion as it was headed for disaster.

It also wants to recover the £20m in consultancy fees which it is expected to claim could have been avoided.

However, the claim could ultimately be much greater if the OR succeeds arguing that it must also be compensated for trading losses in the run-up to Carillion’s demise.

People close to the case say the total damages sought by liquidators could be around £1 billion.

Earlier this year, OR struck a deal with Litigation Capital Management, a publicly listed company, to fund the claim.

The insider says the action against KPMG was prompted by the legal duty of liquidators to maximize refunds to Carillion creditors.

The construction group, which was involved in building and maintaining hospitals and roads, and providing millions of school meals, went bankrupt in January 2018 due to nearly £7 billion.

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Thousands of jobs were lost as a result.

Earlier this year, Kwasi Quarting, the business secretary, authorized the insolvency service to prosecute former Carillion board members including Philip Green, its chairman, with the aim of removing them from serving as directors of the company.

The legal action is expected to allege that KPMG failed in its duties as an auditor to monitor misstatements in the accounts of the outsourcing group.

KPMG’s work for Carillion is investigated separately by the Financial Reporting Council (FRC), the accounting regulator.

In September, the FRC alleged that KPMG and a number of employees had provided it with false or misleading information in connection with the Carillion audit.

Carillion’s demise has become one of the main catalysts for reforming Britain’s audit sector, with far-reaching consequences including the creation of a new watchdog, and requirements for the Big Four – Deloitte and EY too – to ‘operational separation’. Their arms are in auditing and consulting.

At the time of its collapse, Carillion held approximately 450 construction and service contracts across the government.

It employed more than 43,000 people, including 18,000 in the UK.

In a scathing report on the company’s governance, the Business, Energy and Industrial Strategy Selection Committee in General said: « As a large company and a competitive bidder, Carillion has been well positioned to win contracts.

« Its failures to manage it later to turn a profit were masked for a long time by a constant flow of new work and … accounting practices that prevented an accurate assessment of the status of contracts. »

KPMG has served as Carillion’s auditor for nearly two decades, and has generated a total of £29 million for the audit work.

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OR and KPMG declined to comment.