On 7 January 2026, the Financial Conduct Authority (FCA) published Final Notices fining two former Finance Directors for their part in misleading statements being issued by Carillion plc (see Richard Adam Final Notice and Zafar Khan Final Notice).
Key takeaways
Key takeaways from the Notices are set out directly below, but for more details on the findings see our ‘Notice in a nutshell’ table beneath these:
- Challenging targets require robust controls: Whilst it may not be inappropriate for management to set challenging targets, a robust control framework is needed to manage associated risks such as the risk of individuals finding ways to meet the targets that may not be appropriate. Those with responsibility for ensuring adequate procedures, systems and controls are in place in relation to financial reporting should take steps to ensure: (i) they are satisfied with the control framework in place and with judgments being made (and that these are compliant with relevant accounting standards and internal policies); and (ii) that alongside any challenging targets, mechanisms are in place to ensure senior management and the Board obtain a true reflection of performance.
- Process and record-keeping: A coherent internal process is needed to make accounting judgments, obtain approval of them and record them consistently in accordance with relevant internal policies. Having a plethora of different reports can lead to inconsistencies and lack of guidance on how to complete an internal report can lead to divergent approaches and lack of clarity and consistency. Peer review can be helpful, but a process is needed to ensure any recommendations are taken into account and action taken.
- Board and Audit Committee: The management team needs to ensure that all material information is reported to the Board and Audit Committee, particularly where it is inconsistent with other reports they receive. Such reporting will help avoid creating a parallel universe in which the Board and/ or Audit Committee are given an overly optimistic picture and will help to enable them to exercise effective oversight on an appropriately informed basis.
- Beware of “blinkers”: Directors need to be wary of adopting an overly selective approach to the review of information and remain open to the possibility of performance deviating from the forecast. Some of the information reported to the Finance Directors in this case was contained in documents created outside the ‘core’ reporting systems. The FCA considered that the failure to respond appropriately to warning signs was not excused by the fact that they were not received through the core systems.
- Personal accountability of directors: There has not been a previous knowing concern case specifically in relation to the MAR offence. The FCA’s response to the individuals’ representations in this case illustrates their view that, to be knowingly concerned in a breach of MAR, it is not necessary for a director to have known that the information disseminated was incorrect or that steps taken by the company to ensure it was not misleading were inadequate. It is sufficient if the director knew what was announced and knew ‘sufficient facts’ to support the conclusion that the company ought to have known that it was false or misleading. A director has a personal responsibility to take steps to satisfy themselves that information is true and not misleading and a director may be held to be knowingly concerned where their own conduct gives rise or contributes to a failure by their company. Similarly in relation to systems and controls, it was sufficient that the individuals knew of the inadequate steps taken by the company; it was not necessary to show they knew those steps were inadequate.
- Recklessness: In finding that the directors were knowingly concerned in the company’s failure to act with integrity, the FCA considered that failing to respond to risks was reckless and demonstrated a failing of ethics or morals and therefore integrity. Directors should be aware that ignoring warning signs could lead to their integrity being impugned.
Key information
Decision Maker | FCA Settlement Decision Makers |
Individuals | Richard Adam and Zafar Khan (Successive Group Finance Directors at Carillion) |
Related Material | A third individual, the former CEO, has referred his Decision Notice to the Upper Tribunal. The company, Carillion plc (in liquidation), was censured in 2022. |
Sanction | Richard Adam: £232,800 Zafar Khan: £138,900 These penalties were calculated by reference to 30% of the individuals’ income in the 12 months ending with the end of their Relevant Period; they received a 10% discount for co-operation with investigations. |
Settlement | Yes (but too late for a discount) |
Provisions | Article 15 of MAR (prohibition of market manipulation); Listing Rule 1.3.3R (misleading information must not be published); Listing Principle 1 (procedures, systems and controls); and Premium Listing Principle 2 (acting with integrity) |
Relevant Period | Richard Adam: 1 July 2016 and 31 December 2016 Zafar Khan: 1 January 2017 and 10 July 2017 |
Factual Findings | In the face of significant pressure to meet challenging targets, overly aggressive accounting judgments and other tools were used within Carillion to maintain reported revenues and profitability which did not reflect the financial position of certain projects or the associated risks and which did not comply with applicable accounting standards (IAS 11). Management highlighted the risks and exposures within the accounting judgments to Adam/ Khan in various internal reports including in relation to: (i) amounts included in budgeted forecasts but considered unlikely to be recovered (‘hard risks); and (ii) exposures to amounts due on major projects. Neither of them responded to these warning signs. They did not adjust the targets and they were not reported to the Board or Audit Committee which received a more optimistic picture of financial performance. 7 December 2016: Carillion announced a trading update which did not accurately disclose the true financial performance of Carillion. In particular, it failed to disclose significant deteriorations in the performance of certain construction projects and did not take into account warning signs regarding anticipated losses or reduced profitability. 1 January 2017: Mr Khan, who had been the Group Financial Controller, took over from Mr Adam as the Group Finance Director following Mr Adam’s retirement. 1 March 2017: Carillion announced its 2016 financial results making positive statements that performance was in line with expectations which was misleading. 3 May 2017: Carillion made an AGM statement indicating that nothing had materially changed since March. By late May/ early June: Carillion recognised that the deterioration in financial performance of its projects and increasing debt position meant it needed to raise capital. As part of considering a rights issue and de-risking its balance sheet, a review was carried out including in relation to judgments on particular projects. The review recommended a provision of £695 million which was increased to £845 million to take account of additional risks. 10 July 2017: Carillion announced an expected provision of £845 million as at 30 July 2017, of which £375 million was in relation to certain construction projects. Carillion’s share price fell by 39% that day and by 70% within three days. 15 January 2018: Carillion went into liquidation. |
Failings | MAR Article 15 and LR 1.3.3R: Adam and Khan had a central role in preparing and finalising the relevant Announcements made during their tenure and approving them as a Board member, despite being aware of information that was inconsistent with the positive statements made and that this would be highly relevant to the Board and Audit Committee. They failed to ensure such information was brought to their attention and were knowingly concerned in Carillion’s disclosure of false or misleading information. They were also both aware that Carillion intended to announce a PBT figure of £178 million in its 2016 financial results but did not take steps to address inconsistencies between this and materially inconsistent information of which they were aware or bring these to the attention of the Board and Audit Committee. Listing Principle 1: The pressure to meet targets increased the risk of overly aggressive accounting judgments and this risk was not adequately mitigated by sufficiently robust procedures, systems and controls. There was no single coherent process for making contract accounting judgments and obtaining approval and no clear record of assessments being made, approved or reviewed. The Board and Audit Committee were not provided with management information highlighting significant and increasing financial risks which meant they were hampered in their oversight of financial performance and accounting judgments being applied. As Group Finance Directors with responsibilities for ensuring that Carillion had adequate procedures, systems and controls relating to financial reporting, they were knowingly concerned in Carillion’s failure to take reasonable care to establish and maintain adequate procedures, systems and controls. Premium Listing Principle 2: They acted recklessly in relation to the above matters and were knowingly concerned in Carillion’s failure to act with integrity towards shareholders. |
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