The three individuals have referred their respective Decision Notices to the Upper Tribunal where they will each present their case. Any findings in the individuals’ Decision Notices are therefore provisional and reflect the FCA’s belief as to what occurred and how it considers their behaviour should be characterised.
Carillion[1] has not referred its Decision Notice to the Upper Tribunal. The FCA has imposed a public censure on Carillion, rather than a financial penalty, given the firm is insolvent and in liquidation. Were it not for Carillion’s financial circumstances, the FCA would have imposed a financial penalty of £37,910,000.
In the three individuals’ Decision Notices, the FCA has decided to fine Mr Howson[2] (former chief executive officer) £397,800, Mr Adam[3] (former finance director) £318,000 and Mr Khan[4] (former finance director) £154,400.
The Upper Tribunal will determine whether to uphold the FCA’s decisions against the three individuals or not and whether there are any other actions that should be taken by the FCA. The Upper Tribunal's decision will be made public on its website following a hearing. Accordingly, the action outlined in the three individuals’ Decision Notices has no effect pending the determination of the cases by the Upper Tribunal.
The FCA considers that Carillion recklessly published announcements on 7 December 2016, 1 March 2017 and 3 May 2017 that were misleading and did not accurately or fully disclose the true financial performance of Carillion. Those announcements made misleadingly positive statements about Carillion’s financial performance generally and in relation to its UK construction business in particular. The announcements did not reflect significant deteriorations in the expected financial performance of Carillion’s UK construction business and the increasing financial risks associated with it.
In the view of the FCA, Carillion’s systems, procedures and controls were not sufficiently robust to ensure that contract accounting judgments made in its UK construction business were appropriately made, recorded and reported internally to the Board and the Audit Committee.
The FCA also considers that Mr Howson, Mr Adam and Mr Khan acted recklessly and were knowingly concerned in Carillion’s contraventions. In the FCA’s view, Mr Howson, Mr Adam and Mr Khan were each aware of the deteriorating expected financial performance within Carillion’s UK construction business and the increasing financial risks associated with it. They failed to ensure that those Carillion announcements for which they were responsible accurately and fully reflected these matters. Despite their awareness of these deteriorations and increasing risks, they also failed to make the Board and the Audit Committee aware of them, resulting in a lack of proper oversight.
Mark Steward, Executive Director of Enforcement and Market Oversight, said:
'Carillion failed 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. As a result its true financial position remained hidden over many months and the effects of its collapse were aggravated, causing substantial harm to shareholders and creditors. This is market abuse, and as damaging to market integrity as insider dealing and manipulation, though not often described in this way. It should be. The FCA’s decisions on the three senior individuals whom the FCA alleges were involved in these failures will now be reviewed in the Upper Tribunal.'
Notes to editors
1. Carillion plc (in liquidation) Decision Notice[1] (PDF)
2. Richard John Howson Decision Notice[2] (PDF)
3. Richard Adam Decision Notice[3] (PDF)
4. Zafar Khan Decision Notice[4] (PDF)
6. The FCA considers Carillion breached the following provisions during the period 1 July 2016 to 10 July 2017:
- Article 15 of MAR (prohibition of market manipulation) by disseminating information 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;
- 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;
- 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; and
- Premium Listing Principle 2 (acting with integrity) by failing to act with integrity towards its holders and potential holders of its premium listed shares.
7. Carillion had a statutory right to make representations to the Authority in response to the Warning Notice given to it. However, because Carillion is in insolvent liquidation (and because, for that reason, the Authority did not seek to impose any penalty), Carillion (acting by the Official Receiver as its liquidator) did not seek to make any such representations. In the circumstances and having regard to allocation of resources, Carillion’s position is that it neither admits nor denies the matters which were set out in the Warning Notice. The matters found in the Decision Notice given to Carillion have therefore been determined by the Authority independently and the lack of any representations from Carillion has not been treated by the Authority as any form of admission.
8. Find out more information about the Upper Tribunal[5] (Tax and Chancery Chamber).
9. Find out more information about the FCA[6].