Zafar Khan, the former finance director of the collapsed outsourcing company Carillion, has been disqualified from serving as a company director for 11 years.
This action comes more than five years after Carillion’s collapse, which was one of the most significant failures in British corporate history.
The company’s collapse resulted in the loss of 3,000 jobs and caused disruption to 450 public sector projects, including hospitals, schools, and prisons.
The Insolvency Service, responsible for managing Carillion’s collapse, has been pursuing legal action against former directors of the company, including Zafar Khan.
The service accused Khan of his role in Carillion’s distribution of dividends amounting to over £50 million while misrepresenting its financial position by more than £200 million.
The disqualification of Zafar Khan as a company director serves as a consequence for his involvement in misleading the markets regarding Carillion’s precarious financial situation. This action aims to hold individuals accountable for their conduct and actions that contributed to the downfall of the company
Background information to the disqualification
The additional details regarding Zafar Khan’s actions as stated in the directors disqualification register are as follows:
- False and Misleading Financial Information: Zafar Khan caused Carillion PLC to rely on false and misleading financial information while preparing the consolidated Financial Statements for 2016. These statements failed to provide a true and fair view as required by Section 393 of the Companies Act 2006 and did not comply with various International Accounting Standards (IAS) including IAS 11, IAS 18, IAS 32, IAS 38, and the IFRS Framework for Financial Reporting. This resulted in a material misstatement of profits related to the performance of five major construction contracts (Royal Liverpool University Hospital, Battersea Power Station, Aberdeen Western Peripheral Route, Midlands Metropolitan Hospital, and Msheireb Phase 1(B)) and transactions with a third party, Wipro. The misstatement was assessed to be at least £208.5 million, along with an adjusted year-end loss of at least £(61.7 million), in contrast to the reported profit before tax of £146.7 million.
- Misleading Market Announcements: Mr. Khan caused Carillion PLC to make misleading Market Announcements on 01 March 2017 and 03 May 2017. These announcements misrepresented the actual financial performance, position, and prospects of Carillion, and thereby violated Listing Rule 1.3.3R and Article 15 of the Market Abuse Regulation.
- Improper Dividend Payment: Zafar Khan caused Carillion PLC to make a final dividend payment of £54.4 million on 09 June 2017. This payment was not justified based on the FY2016 Financial Statements, as those statements did not provide a true and fair view. Additionally, the dividend payment was not in the best interests of Carillion PLC, its members, or its creditors. It was not a payment that Carillion PLC could reasonably afford considering its actual financial performance.
These actions by Zafar Khan demonstrate a pattern of providing false financial information, misleading the markets, and making improper dividend payments, contributing to the overall misrepresentation of Carillion’s financial health and ultimately leading to its collapse.
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Legal action against other former directors still ongoing
The Insolvency Service is continuing its legal action against the remaining directors of Carillion, and a civil trial is expected to commence in October. When the proceedings were initiated in January 2021, the Insolvency Service named eight individuals, including Zafar Khan, Philip Green (Carillion’s former chair and former adviser to David Cameron), Richard Howson (former CEO), Keith Cochrane (a director since 2015 who replaced Howson as CEO before the company’s failure), and Richard Adam (Khan’s predecessor).
As a result of his disqualification, Zafar Khan is prohibited from serving as a director of a company in England, Wales, or Scotland. He is also barred from instructing others to manage a company on his behalf. If Khan breaches the terms of his undertaking not to act as a director, he can face prosecution.
The legal action against the remaining directors signifies the ongoing efforts to hold all individuals accountable for their actions and responsibilities in relation to Carillion’s collapse.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.