It is estimated £498m was misclassified as a result of Carillion's early payment facility  © PA Wire/PA Images
It is estimated £498m was misclassified as a result of Carillion's early payment facility © PA Wire/PA Images

Carillion 'used suppliers as line of credit'

15 May 2018

Carillion used its suppliers as a “line of credit” to shore up its balance sheet, MPs have said as they prepare to release a report into the collapse of the construction giant.

The Work and Pensions Committee and the Business, Energy and Industrial Strategy (BEIS) Committee, who are conducting a joint inquiry into the collapse of Carillion, have published evidence from Santander, the bank which operated the contractor’s early payment facility (EPF).

MPs said that despite being signatories of the Prompt Payment Code, Carillion were “notorious late payers” who forced standard payment terms of 120 days on suppliers.

The EPF – also known as reverse factoring and supply chain financing –allowed suppliers to be paid earlier, but only if they accepted a smaller payment. 

Parliament also heard that major credit ratings agencies, Moody’s and Standard & Poor’s, believed that Carillion's accounting for their EPF concealed its true level of borrowing from financial creditors. 

Frank Field MP, chair of the Work and Pensions Committee, spoke of Carillion’s “utter contempt for its suppliers”.

“The company used its suppliers as a line of credit to shore up its fragile balance sheet, then in another of its accounting tricks ‘reclassified’ this borrowing to hide the true extent of its massive debt,” he said.

“This knocks down for good the stance of the Carillion board that whingeing and blaming others can be any defence.”

Rachel Reeves MP, chair of the BEIS Committee, said: “The collapse of Carillion left small businesses and subcontractors out of pocket with many left unpaid for months and facing ruin.

“It’s a bitter irony that while Carillion were fully signed up to the government’s Prompt Payment Code, they were making their suppliers hang on for 120 days or more to be paid.”

She said Carillion’s EPF “ripped off” suppliers, forcing them to accept a cut in what they were owed.

Reeves added that the EPF was a blatant attempt by Carillion management to prop up their failing business model.

Moody's believed that as much as £498m was misclassified as a result of the EPF. 

Santander withdrew the facility in December 2017, shortly before the company went into liquidation.

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