Carillion Liquidator Brings £ 250 Million Claim Against Auditor KPMG | Economic news

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The liquidators of Carillion, the construction giant whose 2018 collapse became one of Britain’s biggest corporate scandals, have taken a big step towards a massive lawsuit against KPMG, the former auditor of the company FTSE 100.

Sky News has learned that officials from the official receiver sent a pre-claim letter to KPMG earlier this month as it sued the accounting firm for up to £ 250million.

The pre-action letter – which was sent by PricewaterhouseCoopers in his role as Special Director working on behalf of the Official Receiver – marks another key milestone in what will become one of Britain’s most watched legal battles involving a major law firm. audit.

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KPMG’s work for Carillion is the subject of a separate investigation by the Financial Reporting Council

The development came about a month after the official receiver struck a deal with Litigation Capital Management, a publicly traded company, to fund the claim.

People familiar with the process said the action against KPMG was motivated by the liquidators’ legal obligation to maximize collections for Carillion’s creditors.

The construction group, which has helped build and maintain hospitals and roads, and deliver millions of school meals, went bankrupt in January 2018 due to nearly £ 7 billion.

Thousands of jobs have been lost as a result of its collapse.

Earlier this year, Kwasi Kwarteng, the commercial secretary, authorized the insolvency department to sue former members of Carillion’s board of directors, including Philip Green, its chairman, with a view to having them disqualified from acting in as directors of the company.

The lawsuit is expected to allege that KPMG failed in its statutory audit duties to detect inaccuracies in the accounts of the outsourcing group.

She will seek damages of at least £ 250million on behalf of creditors – reflecting the sums Carillion paid in dividends, advisory fees and losses suffered as she continued to negotiate.

A source said the eventual claim would argue that those dividends would never have been paid if the company’s accounts had been properly audited and correctly reported.

The owners of the Carillon
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Former Carillion executives including Mr Green (second from right) are questioned by MPs in 2018

KPMG’s work for Carillion is the subject of a separate investigation by the Financial Reporting Council (FRC), the accounting regulator.

Carillion’s demise has become one of the main catalysts for reforming the audit industry in Britain, with far-reaching consequences including the creation of a new watchdog and the obligation for the four major firms – Deloitte and EY being the others – to ‘operationally separate’ their audit and advisory branches.

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

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

Carillon
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Carillion employed 18,000 people in the UK

In a scathing report on the company’s corporate governance, Commons’ trade, energy and industry strategy select committee said, “As a large company and competitive bidder, Carillion was well positioned to win contracts.

“Its failures in their subsequent management to generate profit were for a long time masked by a continuous flow of new work and… accounting practices which prevented an accurate assessment of the status of contracts.”

KPMG has been Carillion’s auditor for almost two decades, earning a total of £ 29million for its audit work.

Detailed details of the claim are expected to be served on KPMG later this year, unless a settlement is reached before then.

KPMG declined to comment, although a source close to the company said no formal claims have been filed with the courts.

A spokesperson for the official receiver declined to comment.

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