British politicians chairing the inquiry into the collapse of construction giant Carillion gave a damning assessment of evidence from the company’s directors on Tuesday.
Members of Parliament’s Business, Energy and Industrial Strategy and Work and Pensions committees were trying to discover whether Carillion’s directors prioritized dividend payments to shareholders over improving the company’s £990 million ($1.3.8 billion) pensions deficit. Carillion’s sudden collapse last month left 28,500 members of the company’s defined benefit pension scheme facing the prospect of a loss of some of their retirement benefits.
In a statement on Tuesday, Frank Field and Rachel Reeves, the co-chairs of the joint committee inquiry, described the executives as “a series of delusional characters” who “maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong” and were keen to pass blame on others for the company’s demise.
“Everything we have seen points the fingers in another direction — to the people who built a giant company on sand in a desperate dash for cash,” they said in the statement. The committee added that there was “scant mention” of the pension scheme in company’s recovery plan, which was hastily drawn up in its final days.
The plan, written in January and released publicly on Tuesday, revealed that Carillion was so overleveraged that it had become “unable to generate” sufficient earnings to fund the completion of legacy contracts and meet its pension obligations.
Keith Cochrane, Carillion’s interim chief executive from July 2017 until the company’s demise in January, acknowledged more money had been paid to shareholders as dividends than into the pension scheme, but said this did not equate to prioritizing dividends.
“In terms of the quantum of dividends versus pension fund payments, absolutely. That is a statement of fact,” he told the joint committee. “But, we felt that we continued to support the pension fund in appropriate manner.”
Cochrane had been a non-executive director for two years before becoming interim boss of the company and acknowledged that the board should have asked “more probing questions.”
On Tuesday, the joint committee heard how he was considering jettisoning the company’s defined benefit pension scheme to the U.K. pensions lifeboat, the Pensions Protection Fund, as financial pressure on the company grew.
“The restructuring plan required us to look at the shape of the pension fund,” he said.
When asked by committee co-chairman Frank Field if the company was looking to “dump” the scheme, Cochrane responded “no, we were not.”
But Cochrane conceded that the company faced two options. The first was to offload its pension liabilities to the Pension Protection Fund, the U.K.’s pensions lifeboat, through a so-called regulated apportionment arrangement, a restructuring mechanism for financially troubled companies with outstanding pension obligations. The second would have meant offering different terms to members of the scheme.
Cochrane’s predecessor, Richard Howson, served as the company’s chief executive between December 2009 and July 2017. Howson told the joint committee how the company had been financially constrained and that it had to win more work to protect future cash flows.
“We had to bid and we had to win, because future cash flows were more important than the deficit contributions,” he said.