The Financial Conduct Authority (FCA) has imposed significant fines on two former finance directors of the collapsed outsourcing giant Carillion, holding them accountable for "reckless" conduct that contributed to misleading statements issued before the company's dramatic failure.
Substantial Penalties for Former Executives
The regulator fined Richard Adam £232,800 and Zafar Khan £138,900. The penalties follow the withdrawal of their challenges to the FCA's findings. The FCA stated both men were "aware of serious financial troubles" within Carillion's UK construction business but failed to ensure this critical information was properly reflected in company announcements or escalated to the board.
Carillion, once a titan of UK construction and facilities management with around 43,000 global employees, collapsed into liquidation in January 2018 under a mountain of debt. The FCA concluded that the former finance directors "acted recklessly and were knowingly concerned" in Carillion's breaches of the Market Abuse Regulation and Listing Rules in the period leading up to its downfall.
A Systemic Failure in Financial Reporting
Mr Adam served as group finance director from April 2007 until December 2016. He was succeeded by Mr Khan, who held the role from January to September 2017. The FCA emphasised that both individuals bore responsibility for the firm's financial reporting procedures, systems, and controls.
"These were not sufficient to ensure that contract accounting judgments made in its UK construction business were made, recorded and reported appropriately," the regulator stated. This failure meant the true, deteriorating state of major contracts was not communicated to the market or the company's own audit committee.
Regulator's Stance and Executive Defence
Steve Smart, the FCA's joint executive director of enforcement and market oversight, issued a stark warning: "Those in positions of responsibility have a duty to keep the market accurately and adequately informed. With Carillion, we have seen the serious impact it can have when they don't." He added that the action demonstrates the FCA's commitment to preventing market abuse.
In a statement, Zafar Khan said he settled to end the lengthy proceedings, which he claimed had a considerable impact on his family. "I no longer have the financial resources to enable me to continue to defend these allegations," he said, while maintaining he "acted at all times with integrity and in the best interests of the company."
The case against other former executives continues. The FCA issued a decision notice to ex-chief executive Richard Howson in 2022, which he is contesting. A tribunal hearing is scheduled for 16 February. In a related action, Carillion's auditor, KPMG, was fined a record £21 million by the Financial Reporting Council in October 2023 for its failings.
