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Carillion pretended ‘debt’ was ‘credit’. Here’s why that matters

The company classed their suppliers as creditors, which did a great job of hiding just how much trouble they were really in.

Remember the biggest bankruptcy in the history of the UK's construction sector... Carillion? A group of MPs released some more details on how that happened.

What it means: Okay, this is all very technical. Here's the crux of it: Carillion is signed up to something called the government 'prompt payment code', which means you're supposed to pay people on time. Carillion got round this in two ways: one, by doubling its payment period to 120 days after it signed the code (nice move guys), and two, by using something called an 'early payment facility' (EPF) to pay some of its suppliers in advance in exchange for a discount on their bill.

That's the complicated bit. The reason using this 'EPF' works in Carillion's favour is because they could classify their suppliers as 'creditors' – after all, they were providing them with funds ahead of time – rather than 'holders of debt' (which they actually were.) The reason why that's helpful for Carillion is that it makes their 'debt-to-equity ratio', i.e. the calcuation of how much they owe vs how much they have, look a lot better than it actually is.

In fact, they owed £498m to suppliers at the time of collapse. And also £2.6bn in pensions, and £4-5bn in overall debt. Which means this probably won't be the last story we're de-jargoning on the details of how on earth things got this bad.

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Reader Comments

  • WhereAreTheVikings

    What a terrible, terrible shame. Western Civilization nurtured capitalism, and now capitalism is destroying it. And these young people seem to welcome the invasion of their homeland. The media and schools have been very efficient in wiping out all traces of blood and soil.

    • prollawalllynotahumanoid

      Capitalism isn’t the problem. It’s corrupt politicians taking bribes and kickbacks from Globalists and the Chinese.

      • WhereAreTheVikings

        Maybe I should have said crony capitalism. Although Italians importing Chinese to make “Italian leather” shoes is not crony capitalism. It is capitalism, pure and simple.

        • prollawalllynotahumanoid

          That would be crony capitalism and globalism combined. They aren’t concerned with the affect their policies have upon their citizens, the health and welfare of their society and culture or their economy. What it isn’t is fair-free trade to further national interests.

          • WhereAreTheVikings

            I’ve always seen them as one and the same, but perhaps they need to be named individually, just to bring home the point.

      • WhereAreTheVikings

        But now that travel is so easy and borders are virtually down through H1bs and the like, theoretically you can’t blame capitalists for the pursuit of cheaper labor, although I do heartily blame them not being more patriotic than that. Perhaps the emerging nationalism will force them to voluntarily do what they should have morally been doing all along, and that is employing business practices that preserve their countries and nationalities. The government should be doing everything it can to encourage that, to the extent that small government should do anything but guard the borders and strictly, drastically, limit immigration.

      • Henry Lam

        It is China with its corrupted mindset affecting the world.

        • prollawalllynotahumanoid

          No it is not. Capitalism is the fairest and least corrupt system of all.

          Socialism and communism is based on authoritarianism, coercion and police intimidation. It has and always will be rife with criminality, bribes and kickbacks.

          Corruption can be anywhere but it is the very basis of socialism and communism.

    • Henry Lam

      The government is too weak. They do not understand the mindset of communists and how they educate their people. Those communist people are only loyal to their country and could be dangerous. The immigration law should only accept those who accepted multiculturalism and taught from a democratic education system. This virus events clearly has shown how stupid to take China as a friend.

      • WhereAreTheVikings

        The government is not too weak. Just weak-minded about some things.

  • Gabi Rodrigues

    For how many days can a country maximum close their borders to foreigners maximum? Like now, with the virus, everyone is using 30 days. Can it be more?