Primary Market Bulletin 62

Carillion, a premium listed issuer, recklessly published announcements on 7 December 2016, 1 March 2017 and 3 May 2017 that were misleading.    

The announcements made misleadingly positive statements about Carillion’s financial performance generally and about its UK construction business, Carillion Construction Services (CCS), in particular. They did not reflect significant deteriorations in the expected financial performance of CCS and the increasing financial risks as a result.    

Carillion’s procedures, systems and controls were not sufficient to ensure that contract accounting judgements made within CCS were appropriately made, recorded and reported internally to the Board and the Audit Committee.

We found Messrs Adam, Howson and Khan had acted recklessly and been knowingly concerned in Carillion’s contraventions.    

They were each aware of the deteriorating expected financial performance within CCS and the increasing financial risks as a result. They failed to ensure that the Carillion announcements, for which they were responsible, accurately and fully reflected these matters. They failed to make the Board and the Audit Committee aware of the increasing risk, resulting in a lack of proper oversight.    

The Annex to Carillion’s Final Notice, and Annex A to the Final Notices of each of its former directors, set out the statutory and regulatory provisions relevant to their outcomes.    

Annex B to the Final Notices of each of the former directors (which contain detailed summaries of the key representations made by the former directors, which we did not accept, and our conclusions in respect of them) cite other relevant law and guidance.    

Of particular note are the following provisions in force at the time of the relevant breaches (EU MAR was onshored into UK law on 31 December 2020 by the European Union (Withdrawal) Act 2018. UK MAR replaced EU MAR from this date.):  
 

Article 12(1)(c) of MAR  

We set out below what we consider to be the key issues relating to the ‘ought to have known’ element of Article 12(1)(c) of MAR that arise from the Final Notices.

We found that the announcements contained statements that were not justified by the facts and matters known to Carillion about the continued deterioration of CCS over the relevant period.

For the reasons set out in paragraphs 5.5 to 5.17 of Carillion’s Final Notice, we considered that Carillion and its former directors (as applicable) ought to have known that the information in the announcements was false or misleading.

By disseminating information that gave false or misleading signals about its share price in circumstances where it ought to have known this information was false or misleading, Carillion committed market manipulation in breach of Article 15 of MAR.

Carillion’s breach of Article 15 is based on the attribution of knowledge of its former directors to Carillion, as a result of which Carillion ought to have known that the announcements were false or misleading.

The test to establish whether Carillion/its former directors ought to have known that this information was false or misleading is an objective one. If a reasonable person in their position ought to have known the information in the announcements gave, or was likely to give, false or misleading signals as to Carillion’s share price, Carillion would commit market manipulation as defined in Article 12(1)(c) of MAR. The knowledge of a company’s directors, as well as other employees or agents, may be attributable to the company for these purposes.

We attributed the knowledge of Mr Howson to Carillion for our finding that Carillion had committed market manipulation as defined in Article 12(1)(c) of MAR for all of the announcements. We did the same for Mr Adam’s knowledge to Carillion for our finding in this regard for the December 2016 announcement, and for Mr Khan to Carillion for our finding in this regard for the March and May 2017 announcements.

Below, we summarise the knowledge of the former directors, and therefore that of Carillion, about the false or misleading information in the announcements.

During the relevant period, there was significant pressure on CCS to meet very challenging financial targets maintained by the former directors in the face of clear warning signs that CCS’s business was deteriorating significantly.    

This led to an increasingly large gap between CCS’s internal assessments of its financial performance, and its performance as budgeted and ultimately reported to the market. This gap was bridged by using overly aggressive contract accounting judgements to maintain CCS’s reported revenues and profitability. However, these judgements did not reflect the true financial position or financial risks of CCS’s business.    

CCS’s management highlighted the significant and increasing financial risks and exposures from these contract accounting judgements to one or more of the former directors during the relevant period. In particular:

• CCS reported to them on ‘hard risks’ associated with its construction projects (amounts included within budgeted forecasts but which were considered by CCS management unlikely to be recoverable). At the time of the announcements, these hard risks were material.    
• CCS reported to them on its potential exposure to contentious amounts due on major projects. The likely exposure to these contentious amounts at the time of the announcements was material, with 11 out of 16 named major projects having a red flag status.  
• CCS highlighted to them large and increasing divergences in financial performance on 4 major projects. CCS made clear there was an increasingly large disparity for those projects between the assessments of financial performance by project and/or management teams within CCS and the financial performance as reflected in Carillion’s budgeted forecasts.  

Partly due to these circumstances, and as per paragraph 5.20 of Carillion’s Final Notice, we considered that Messrs Adam, Howson and Khan (as applicable) were aware that there was a risk that the announcements were false or misleading.  

They did not respond appropriately to this risk and failed to take it properly into account when reviewing and approving the announcements as Board members. They also failed to inform the Board and the Audit Committee about these matters for the purpose of their review and approval of the announcements.    

Instead, the key information received by the Board and the Audit Committee about CCS’s financial performance (submitted and/or approved by one or more of the former directors), painted a much more optimistic picture than that being internally reported by CCS.  

This was despite the fact the former directors must have been aware these matters would be highly relevant to the decision-making of the Board and the Audit Committee. This is particularly the case given the nature and cumulative effect of the information they were given by CCS management. This information highlighted increasing levels of financial risks and exposures from the financial performance of CCS’s construction contracts.  

We considered that Messrs Adam, Howson and Khan acted recklessly as a result and attributed the state of mind of the former directors to Carillion in this regard. Carillion’s breach of Article 15 of MAR was therefore committed recklessly.  

This outcome, in combination with our findings under Listing Rule 1.3.3R, Listing Principle 1, Premium Listing Principle 2 and the knowing concern of the former directors in Carillion’s breaches underlines the:

• High standard of disclosures expected of listed companies.
• Need to maintain adequate procedures, systems and controls.  

It also highlights our willingness to hold executives to account for breaches by issuers, underscored by the Financial Reporting Council’s 2024 UK Corporate Governance Code’s introduction of board accountability for effective internal controls at listed companies. 

We want to reinforce to directors of quoted companies and their advisers that it is vital to carry out appropriate due diligence on an approach before you engage further with any proposal.  

This includes making sure you:

• Clearly understand who the investors are.
• Confirm the investment offer is genuine.
• Review the investors’ track record for any similar deals.  

We are increasingly using data and technology to identify and review these situations.  

We will continue to strengthen our detection capabilities and act accordingly. However, the success of preventing this type of market manipulation in the first place is best achieved by issuers and their advisers identifying potentially suspicious activities at source.  

We want every issuer and adviser involved in capital markets to recognise that you are all part of the solution in preventing market abuse, which can harm both the company affected and wider market integrity. 

We want the first lines of defence to be as strong as possible.  

Strengthening those defences:

• Directly protects issuers from unusual share price movements and from reputational harm which could impact later capital raises.  
• Protects investors from potentially significant losses typically associated with pump and dump manipulation.
• Prevents harm to the integrity and appeal of UK markets.  

If you identify concerns that you may have become the target of such activity, you should report it to us.  

Report suspected market abuse.

When introducing the UK Listing Rules, we recognised that sponsors might require ongoing support, particularly in new aspects of their role.  We said we would share wider feedback from our reviews of sponsor services to help sponsors comply with the rules.  

This article covers practices we have seen during recent reviews of the modified transfer process covered by UKLR TP2.  

We hope our anonymised observations will increase sponsors’ understanding and help them calibrate their approach to modified transfers against observed market practice. 

In late 2025, we began several reviews of sponsors that had worked on modified transfers into the equity shares (commercial companies) (ESCC) category.

These reviews focused on the nature and extent of the sponsors’ due diligence in supporting the modified transfer declaration.    

Our reviews spanned a number of sponsors and a broad variety of transactions and scenarios.  

We requested and reviewed key records of these transactions and held meetings to explore in more depth how they approached their work and the bases for their judgements.  

We have discussed our observations with these individual sponsors. 

We are encouraged to see the modified transfers process being used and sponsors applying their expertise and judgement.  

We encourage sponsors on a case-by-case basis to contact us via a guidance request if you are in any doubt about whether an issuer is eligible to use the modified transfer process.