The Regulator has published its regulatory intervention report on the Carillion Group, which went into insolvency in January 2018. It has concluded that there were no grounds to issue a Contribution Notice or a Financial Support Direction under the anti-avoidance powers that it had at the time.
The Regulator’s investigation principally involved two strategies:
- Reviewing corporate transactions leading up to the insolvency. Prior to Carillion’s collapse, substantial proceeds were received as a result of disposals. These were used to provide essential liquidity and also to make deficit repair contributions to the schemes. Therefore, the Regulator concluded there was no “material detriment” which justified a Contribution Notice.
- Working with other agencies to consider whether they had uncovered information that could support the use of the Regulator’s powers (in this case the FCA, the Financial Reporting Council and the Insolvency Service). The FCA stated that it would have fined Carillion almost £38m for contraventions of the Market Abuse Regulation and the Listing Rules if it had not been in liquidation. Three former Carillion executives are to receive substantial financial penalties. However, even if the dividends which were paid had been withheld, it did not follow that the pension schemes would have received additional payments, given the level of Carillion’s debt.
A further factor justifying the Regulator’s decision was its conclusion that if the 2015 and 2016 dividends had not been paid, directors could reasonably have used the cash to pay down debt rather than increase payments to the schemes. The Regulator also found there was no scope for it to issue a Financial Support Direction. As the whole Carillion group had entered insolvency, there were no targets capable of providing financial support to the schemes.
Comment
Would the Regulator’s current powers in relation to criminal offences have prevented these actions being taken, had they been in force prior to the insolvency? It is difficult to say given the debt burden.
