Carillion rescue “undermined” by Royal Bank of Scotland and Santander
Carillion’s biggest lenders restricted funding to the stricken firm three days before it went bust, “undermining” efforts to save Britain’s second-biggest contractor, it has been claimed.
In witness statements filed with the High Court, former boss Keith Cochrane alleges the Royal Bank of Scotland “undermined” the Carillion’s attempts to conserve cash, Sky News first reported.
Carillion failed in the early hours of Monday, putting nearly 20,000 jobs at risk.
Santander, meanwhile, made immediate changes to lifeline funding in the run-up to Christmas, Cochrane claims.
Read more: Carillion’s banks were left on the sidelines while shares plummeted
Unilateral action
Cochrane, who was drafted in the wake of Carillion’s shocking £845m contract write-down in July, accused RBS of “unilateral action which in the company’s view undermined the group’s efforts to conserve cash”.
Carillion’s liabilities totalled £2.2bn, according to Cochrane, of which £350m related to early payment facilities.
RBS has been heavily criticised for its historical treatment of distressed business customers, with the actions of its controversial Global Restructuring Group the subject of parliamentary scrutiny and legal action.
Cochrane’s said, RBS informed Carillion last Thursday it wanted the company to pre-fund supplier payments – this putting an additional two days of extra strain on Carillion’s already precarious cash flow.
The construction veteran said a strategy to pre-fund supplier payments “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been agreed and that the terms of this support would determine whether other uncommitted facilities with RBS would be withdrawn”.
Read more: Revealed: Behind the scenes of Carillion’s annus horribilis
Early payment facility
Meanwhile, Santander was also singled out by Cochrane, according to the reports. The lender made changes to its critical early payment facility (EPF) on 21 December – writing to Carillion to inform the changes would take place with immediate effect.
“The company relied upon that EPF in order to assist it making payments to its suppliers,” he 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’.”
What the banks said:
An RBS spokesperson said:
RBS has provided considerable support and forbearance to Carillion over many months including providing additional funding last year alongside the other main lenders. The judgement of the bank was that the restructuring plan put forward by the company was not viable and therefore we took the difficult decision not to extend further funding and increase our exposure to the business. We need to balance the interests of all our stakeholders when taking these decisions, and on that basis, we regrettably were not in a position to continue to put further funds into the business.
A Santander spokesperson said:
As a prudent lender Santander continuously reviews the level of all revolving credit facilities to ensure our exposure to loss is assessed against risk appetite. With regard to Carillion, following the company informing the lending banks in December of a material additional funding requirement, we removed the automatic payment service on the company’s supply chain finance but left the uncommitted facility in place. This gave us greater oversight of the invoices and liability before paying. We continued to process invoices in line with the company’s forecast need. Invoices presented for discounting to the Santander facility up to the normal close of business on the Friday prior to the company’s liquidation on Monday 15th January, have been paid.
We believe, given the circumstances, this was a prudent step. It allowed us to enter into constructive dialogue with Carillion to understand its funding requirements.
Read more: Carillion boss previously found guilty of breach of trust over pensions