Sky sources: Carillion collapsed with £5bn in financial liabilities | Economic news

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Carillion, the bankrupt construction group, had financial liabilities worth around £5billion when it went bankrupt this week, according to the most extreme calculation of its obligations to tens of thousands of members of the pension plan.

Sky News can reveal that a private analysis of Carillion’s pension shortfall on the basis of Section 75 – or full buyout – concluded it was £2.6billion, a sum well in excess of the accounting shortfall of £587m mentioned by its former chief executive. in a witness statement to the High Court.

The £2.6billion figure relates to the cost to Carillion of paying an insurance company to secure all of its pension liabilities, and is significant as it will likely be the sum claimed on behalf of the schemes retirement as part of the liquidation process, according to insiders.

Sources said the total redemption shortfall was also relevant because added to Carillion’s other debts, including those owed to its banks, it brings Carillion’s total financial obligations when it collapsed to around £5 billion. pound sterling.

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The vast scale of the company’s total debt further eclipses its relatively tiny market capitalization of just £61million when the official receiver was called in on Monday morning.

Although the pension schemes are filing a £2.6billion claim with the liquidator, there is no prospect of that money being paid, as Carillion went bankrupt with just £29million on its balance sheet.

:: What ultimately went wrong at Carillion?

The Pension Protection Fund will now step in to compensate 28,500 pension scheme members, with the total bill before it likely to be £920million.

The PPF pays a reduced level of retirement benefits to workers in companies that become insolvent, compared to their original entitlement.

In addition to the £2.6 billion Section 75 pension shortfall, Carillion’s liabilities when it went bankrupt included £1.3 billion owed to its banking syndicate; £350 million from prepayment facilities with suppliers; cross-guarantees of £630 million relating to surety facilities; £170m of convertible bonds guaranteed by the company; and an unknown debt to Her Majesty’s Revenue and Customs, of which £16 million was due at the end of the month.

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Counting the political and financial cost of Carillion’s collapse

The size and complexity of Carillion’s balance sheet are likely to be among the factors investigated in a host of investigations into the conduct of the company’s directors and auditors.

Greg Clark, the business secretary, ordered the insolvency department to expedite a request in the Carillion crisis, while the Financial Reporting Council was asked to review the work of KPMG, the company’s auditor, and individual members.

Ministers have scrambled since the Carillion collapse to contain its fallout, fearing tens of thousands of contractors could be caught up in one of the biggest disasters to hit a major UK industrial group in decades.

While Parliament’s Liaison Committee, a consortium of all select committee chairs, was the latest to announce its own investigation.

Labor MP Frank Field, who chairs the Work and Pensions Committee, said: ‘I will offer to take evidence from company directors, trustees, the pensions regulator and auditors who have somehow concluded that Carillion was a going concern.”

News of Carillion’s much larger financial debts comes days after Keith Cochrane, its interim chief executive, revealed in a legal statement that the taxpayer-backed Royal Bank of Scotland (RBS) had tightened terms of its funding to Carillion three days before. it was forced to call in liquidators.

:: Carillion key personnel

Mr Cochrane, who has yet to speak publicly about the business meltdown he was responsible for since a profit warning sent his shares tumbling last July, accused RBS in his statement of having taken “a unilateral action which the company says undermined the group’s business efforts to save money”.

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May and Corbyn clash over struggling business

According to Cochrane, RBS told Carillion last Friday that it wanted the company to pre-fund supplier payments made through the bank, which meant it would have to make those payments two days earlier than expected.

He said it had a negative impact on Carillion’s liquidity of £2m to £20m.

Santander UK, another member of Carillion’s largest lenders committee, was also criticized by Mr Cochrane for causing panic within the lending syndicate on December 21 by writing to the construction giant’s suppliers to inform them of the immediate modifications to an Advance Payment Facility (EPF) with the Bank.

The interim leader’s statement details the increasingly frantic nature of efforts to secure financial support from the government, the tax authorities and its lenders in the months leading up to its collapse.

Its failure has left 19,500 UK workers in fear for their jobs and uncertain about the viability of a number of major public sector projects, encouraging Labor leader Jeremy Corbyn to say private companies should be stripped government contracts.

A spokesman for Carillion pension administrators declined to comment on Friday.

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