The taxpayer-backed Royal Bank of Scotland (RBS) tightened the terms of its funding to the stricken Government contractor Carillion three days before it was forced to call in liquidators.
Sky News has obtained a witness statement filed at the High Court by Keith Cochrane, its interim chief executive, which details the increasingly frenetic nature of efforts to rescue the company.
Carillion collapsed on Monday, raising doubts about the future of more than 19,000 UK staff and igniting a political firestorm over ministers’ handling of the crisis.
Image: Keith Cochrane replaced Richard Howson as chief executive on an interim basis last summer
It went bust carrying more than £2.2bn of financial liabilities, according to Mr Cochrane, comprising of almost £1.3bn of debt to financial creditors; £350m relating to Carillion’s early payment facilities; tax liabilities including £16m due later this month; and a defined benefit pension deficit of £587m.
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Mr Cochrane, who has yet to speak publicly about the collapse of the company he had been in charge of since a profit warning sent its shares tumbling last July, accused RBS in his statement of taking “unilateral action which in the company’s view undermined the group’s efforts to conserve cash”.
That suggestion may spark fresh criticism of RBS, which continues to face regulatory scrutiny from the City watchdog over its treatment of financially distressed business customers.
The bank continues to be majority-owned by the Government almost a decade after its £45.5bn bailout.
A number of senior bankers said RBS was simply taking prudent steps last week to manage its exposure to Carillion given the parlous state of the construction group’s finances.
Image: Carillion’s collapse was announced just before 7am on Monday
RBS had already taken an impairment charge of £151m relating to Carillion at its third-quarter results last year, and Sky News revealed on Monday that the HS2 rail link contractor’s lenders were facing total losses of around £2bn.
According to Mr Cochrane’s witness statement, RBS informed Carillion last Friday that it wanted the company to pre-fund supplier payments made through the bank, which meant it would need to make those payments two days earlier than cashflow forecasts had assumed.
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He said this negatively impacted Carillion’s liquidity by between £2m and £20m.
RBS, he added, insisted that this revised arrangement “would be in place until support from [the Government] had been agreed and that the terms of this support would determine whether other uncommitted facilities with RBS would be withdrawn”.
RBS is not the only lender to Carillion singled out in Mr Cochrane’s witness statement.
Santander UK, another member of the committee of Carillion’s biggest lenders, caused panic among the lending syndicate on 21 December by writing to the construction giant’s suppliers notifying them of immediate changes to an Early Payment Facility (EPF) with the bank.
“The company relied upon that EPF in order to assist it making payments to its suppliers,” Mr Cochrane said.
“Santander informed the group’s suppliers that arrangements to automatically prepay invoices submitted by the supplier would be terminated and it sent a separate email to certain of its suppliers that ‘all payments with Carillion are stopped'”.
Video: How did it come to this for Carillion?
The interim boss added that the Spanish-owned bank relented following “urgent discussions” with the other lenders and the company but reduced the maximum value of discounted supplier invoices from £150m to £117m.
Mr Cochrane’s statement, made on behalf of the entire Carillion board, also discloses that the company begged Her Majesty’s Revenue and Customs for support in the form of payment deferrals on tax liabilities at a meeting on 9 January.
He added that even as it was winning “significant new contracts, including with [the Government]” in the last two months of 2017, “the company also suffered during this period because bonding providers withdrew facilities, credit insurers reduced or eliminated coverage and certain long-standing customers informed the company that they would not place new work until its balance sheet issues were resolved”.
According to Mr Cochrane, Carillion wrote to the Government on Saturday requesting an unquantified sum of short-term funding to provide it with liquidity for four months to allow it to carry out a broader restructuring plan with creditors.
The letter “noted that should [the Government] or creditors refuse to provide such support the company may be forced to conclude that there is no longer a reasonable prospect of it avoiding insolvent liquidation, and the importance of adequate contingency planning”.
That request was rejected at a meeting on Sunday, according to Mr Cochrane’s statement, confirming a Sky News report later that evening.
Sky News understands that during a last-ditch discussion held on Sunday night, RBS, Santander UK and Lloyds Banking Group decided not to extend additional funding that would have enabled Carillion to limp on for another week.
Barclays and HSBC indicated that they would be prepared to support further emergency loans to the company.
Video: Who will be affected by the collapse of Carillion?
A Lloyds spokesman said: “Lloyds Banking Group had been supporting Carillion for many months, including providing additional financing last year alongside the other main lending banks, in order to provide the company’s management time to consider its options.
“Unfortunately the company was unable to implement a viable restructuring plan.
“In the absence of any such plan, we were unable to provide additional financing.”
Santander UK said: “It is with serious regret that following several years of support for Carillion we made the decision to not extend further funding to the business.
“We did not take this decision lightly.
“In the absence of a viable business plan we were not prepared to increase our exposure and further losses.”As a responsible lender, we are accountable to all of our stakeholders when making lending decisions and need to assess the impact of our actions on all of them.
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“It is that assessment which led us to the conclusion that we did not believe it would be responsible to offer further financial support in these circumstances.”
RBS declined to comment.
Source: SKY News