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Carillion: Britain's Biggest Corporate Failure

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Collapsed British firm Carillion, which has come under political fire for paying dividends while racking up big debts and a pension deficit, has handed more than $1 billion to shareholders since it was created 19 years ago, a Reuters analysis shows.

The construction company raised its payout to shareholders every year, taking its dividends from 4 pence-a-share in 1999 to 18.45 pence-a-share in 2016, according to the analysis of its accounts. That means it handed out a total of 775.8 million pounds ($1.1 billion) to shareholders over its lifetime, until it fell into liquidation this week, Reuters calculations show.

Carillion collapsed on Monday, with a pension deficit of 900 million pounds ($1.1 billion) and owing almost 1.3 billion pounds to its lenders, when its banks pulled the plug. It was working on 450 state projects, including the building and maintenance of hospitals and schools, defense sites and a high-speed rail line, and its liquidation forced the government to step in to guarantee public services.

Britain’s biggest corporate failure in a decade has provoked anger among the country’s lawmakers. Rachel Reeves, chairwoman of parliament’s business, energy and industrial strategy committee, said that “”year after year”” Carillion paid dividends to its investors, despite its debts and pension deficit. She tweeted that the government “”must do much more to prevent companies siphoning off money to the detriment of suppliers, workers and the British taxpayer””.

Carillion’s reported results are coming under scrutiny. Business Secretary Greg Clark said on Tuesday that he had asked the Financial Reporting Council regulator to investigate Carillion’s past and present accounts to shed light on what caused it to enter liquidation. He added that he had also requested that the Insolvency Service government agency fast track an investigation into the firm’s directors.

Carillion traces its roots back 200 years, although the modern company was created in 1999 following its demerger from Tarmac.In its most recent annual report – for its 2016 financial year, issued before the company’s problems came to light – the firm laid out its “”progressive”” policy for shareholder payouts, which it said aimed “”to increase the dividend each year broadly in line with the growth in underlying earnings-per-share””.Its underlying earnings-per-share rose 1 percent to 35.3 pence that year, and its dividend was also lifted by 1 percent from 18.25 pence-a-share in 2015.

But at the same time its pre-tax profits fell 5 percent to 146.7 million pounds and its pension deficit more than doubled in size to 804.8 million pounds, the annual report shows. The Pension Protection Fund, a statutory body that manages the pension schemes of insolvent companies, says the company’s pension deficit is now about 900 million pounds. The troubles that led to its collapse erupted in July last year, when it sounded a profit alert to investors, warning that it was taking a 845 million-pound write-down to account for soured contracts, and said it was suspending its dividends for 2017. Its shares plunged 39 percent on the day.

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