PwC to net £50m from Carillion insolvency

PwC to net £50m from Carillion insolvency

The NAO report revealed that Carillion's insolvency will cost the taxpayer £148m while PwC will net £50m, a figure that has been questioned by MPs Rachel Reeves and Frank Field

PwC to net £50m from Carillion insolvency

The National Audit Office (NAO) has published the findings of an investigation into the government’s handling of Carillion’s collapse, revealing that PwC stands to earn £50m from managing it’s insolvency.

The NAO report also estimated that the liquidation of Carillion could cost UK taxpayers £148m, subject to various uncertainties, in addition to wider costs to the economy, Carillion’s customers, staff, the supply chain and creditors.

In addition to the £148m sum provided by the Cabinet Office, the report said the total cost to the taxpayer will likely be higher because “some public sector bodies are paying a 20% premium for post-liquidation services and some customers will incur costs in replacing Carillion as a contractor.”

Carillion collapsed with debts of £1.5m in January and 420 public sector contracts.

MPs question PwC fees

Labour MPs Rachel Reeves and Frank Field, who chair the parliamentary committees responsible for the Carillion inquiry, wrote to PwC querying potential conflicts of interest arising from the firm’s work for Carillion subsidiaries, Carillion pension schemes and the government over several years.

The MPs also asked PwC to confirm whether the £50m fee estimate is correct, and why a 20% premium on post-liquidation services is being charged.

In a separate letter to the Official Receiver of the Insolvency Service, MPs brought up PwC’s conflicts of interest and questioned whether it would be appropariate to bring in a second firm.

Rachel Reeves, who chairs of the business, energy and industrial strategy committee, told the Guardian, “the dice are loaded in the Big Four’s favour.”

“They make a killing in fees advising struggling companies how to turn them round and then they pocket millions tidying up when that advice fails. On Carillion, taxpayers are left to foot the multimillion pound bill for corporate failure.”

Frank Field,  chair of the work and pensions committee, said the report proved Carillion had “hoodwinked” the government. He added: “More money for PwC is less money for sub-contractors and the Pension Protection Fund.”

The company’s pension liabilities of £2.6bn will fall to the Pension Protection Fund. The NAO report added that companies owed money by Carillion are unlikely to recover much of their investments.

A PwC spokesperson said it had been appointed to manage “a liquidation of exceptional size and complexity as quickly and effectively as possible”.

“We understand concerns over the cost of the liquidation, however, without this work the cost to UK jobs, the economy and the taxpayer would be considerably higher.”

Calls for Big Four break-up

The final report from the parliamentary Carillion inquiry released on 16 May called for the break-up of the Big Four firms. Rachel Reeves said: “KPMG, PwC, Deloitte and EY pocket millions of pounds for their lucrative audit work – even when they fail to warn about corporate disasters like Carillion.”

“It is a parasitical relationship which sees the auditors prosper, regardless of what happens to the companies, employees and investors who rely on their scrutiny.”

“The Competition and Markets Authority must now look at the break-up of the Big Four accountancy firms to help increase competition and deal with conflicts of interest.”

Liquidation expected to make an overall loss

After Carillion issued a profit warning in July 2017, the Cabinet Office began contingency planning. Carillion asked the government for £223m in emergency support in January 2018 but were refused after the government costed various options for insolvency or support of Carillion, in conjunction with PwC.

PwC and the Cabinet Office costed four options, finally deciding on a trading liquidation, meaning Carillion would continue to provide services during liquidation after other options were deemed too risky. A trading liquidation was chosen on the basis that it would minimise disruption and cost, maintain as many public services as possible and job security, and would avoid setting an unhelpful precedent.

Almost all public and 90% of private sector customers agreed to Carillion continuing to provide services to them during the liquidation.

The liquidation is expected to make an overall loss, “mainly because post-liquidation income will not fully cover the cost of the provision of public services.”

At the time of liquidation Carillion employed around 18,200 people in the UK. The NAO report noted that 64% have found new employment, 13% have been made redundant and the remainder are still employed by Carillion.

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