A litigation funder has agreed to back a £250m negligence claim against professional services company KPMG for its audits of construction business Carillion.
Litigation Capital Management (LCM) has said it would back the case in the Commercial Court of the High Court of Justice of England and Wales brought by Carillion’s entities liquidator.
The largest corporate collapse in UK building and construction industry history, Carillion collapsed in January 2018 with a reported £7bn worth of liabilities.
Prior to this, Carillion formed part of a consortium that held contracts to build part of the forthcoming HS2 high speed railway line, it maintained 50,000 homes for the Ministry of Defence and managed schools, highways and prisons.
Patrick Moloney, chief executive of LCM, said: "As a pioneer of the litigation finance industry, LCM has long and deep experience in funding insolvency related disputes. As such, LCM is extremely well placed to tailor a finance package to pursue these claims.”
On 10 July 2017, Carillion announced that its profits would be hit to the tune of £845m and, as a consequence, its chief executive would resign and there would be no dividends paid that year. Of the £845m charge, the business said £375m related to business in the UK and £470m to overseas markets.
Two months after this, the firm’s half-year financial statements revealed a total hit to the company’s worth of £1.2bn - enough to wipe out the profits from the previous eight years put together. The company entered compulsory liquidation, a court-based procedure that sees a business’s assets realised for the benefit of creditors, the following January.
Later that month, the court appointed the official receiver - a civil servant employed by the Insolvency Service - as a liquidator of Carillion.
According to The Times, the £250m charge was quantified by the official receiver due to the about £250m paid in dividends and advisory fees paid between 2014 and 2017, which it says it “would not have been paid if the misstatements in the financial statements had been detected by KPMG”.
Commenting on LCM’s involvement in the case, its executive vice chairman Nick Rowles-Davies said: “This investment demonstrates LCM’s prominence and pedigree in the disputes finance industry and in particular, LCM’s position as funder of choice in the UK insolvency market and we are delighted to be supporting thousands of creditors who have suffered as a consequence of the biggest insolvency in recent UK history.”
The Financial Reporting Council has already conducted two initial investigations into potential breaches of professional standards. The subsequent reports have both been handed to KPMG but have not yet been made public.
In a separate investigation, the Financial Conduct Authority (FCA) found in November last year that Carillion and some of its executive directors “recklessly misled” markets and investors.
Commenting at the time, the FCA said: “They made misleadingly positive statements about Carillion’s financial performance generally and in relation to its UK construction business in particular.”
Credit Strategy has reached out to KPMG for comment.