Biggest asset on Carillion's books was 'goodwill'

MPs have expressed surprise that the biggest asset on the books of collapsed Black Country construction group Carillion was £1.57 billion of "goodwill".

The chairmen of two Parliamentary select committees questioned the head of an independent regulator on whether it was good practice to have so much goodwill on the balance sheet.

Stephen Haddrill, chief executive of the Financial Reporting Council (FRC) said it was not, but added that it was "not untypical".

Wolverhampton-based Carillion was placed into liquidation earlier this month after struggling with debts of £900 million and a pension deficit of £587 million.

The company was working on the new £558 million Midlands Metropolitan Hospital in Smethwick, phase one of the £700 million city centre Paradise project and the tunnels for the HS2 rail line between London and Birmingham.

Mr Haddrill came under fierce questioning from members of the Work and Pensions and Business Committees on why something was not done to prevent the spectacular collapse of Carillion.

He said the FRC had been "actively monitoring" Carillion for six months before the company went into liquidation on January 15 but it was not public knowledge and no public statements were made.

Rachel Reeves, who chairs the Business Committee, said investors should have the right to know a company was being monitored but Mr Haddrill said there was a system of confidentiality clauses in place.

He said the requirement in legislation for confidentiality should be reviewed.

The MPs also criticised the lack of competition among top auditors with four big firms dominating the sector.

Frank Field, who chairs the Work and Pensions Committee, said there was an "oligarchy" in the sector and asked whether the committee should be recommending the four firms should be broken up.

He added that two of the previous three finance directors at Carillion came from KPMG.

He said: "Did that not send a warning to you? They are all mates. Four companies dominate the scene."

Mr Field said he did not know what "goodwill" meant, noting the item disappears once a company was in trouble.

Ms Reeves said the £1.57 billion figure was "surprising", adding: "It was only goodwill that kept the assets high."

Mr Haddrill said there was an "enormous" cause for concern about how the company was governed, adding: "We all look at what has happened with a degree of incredulity.

"We need to look on what basis directors were making decisions."

Mr Haddrill denied the FRC was "toothless", saying it was one of the most effective regulators in the world.

Sarah Albon, chief executive of the Insolvency Service, said Carillion was made up of 326 companies, including 199 in the UK, with a total of 169 directors across the group.

The FRC has launched an investigation into KPMG's audits of Carillion.