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Carillion used its early payment facility to hide 拢498m of borrowed cash, according to the MPs running the inquiry into the company鈥檚 collapse.

Two major credit ratings agencies, Moody鈥檚 and Standard & Poor鈥檚, have claimed that Carillion鈥檚 accounting for their early payment facility (EPF) hid its true level of borrowing from financial creditors.

They argue the EPF structure meant Carillion had a financial liability to the banks that should have been presented in the annual account as 鈥渂orrowing鈥�.

But Carillion presented these as liabilities to 鈥渙ther creditors鈥�, with Moody鈥檚 claiming up to 拢498m was misclassified. 

Labour MP Frank Field, chair of the work and pensions committee and co-chair of the inquiry, said: 鈥淐arillion displayed utter contempt for its suppliers, many of them the small businesses that are the lifeblood of the UK鈥檚 economy.

鈥淭he company used its suppliers as a line of credit to shore up its fragile balance sheet, then in another of its accounting tricks 鈥榬eclassified鈥� this borrowing to hide the true extent of its massive debt. This knocks down for good the stance of the Carillion board that whingeing and blaming others can be any defence.鈥�

While Carillion was a signatory to the Prompt Payment Code, the firm was known for being a late payer who forced standard payment terms of 120 days on its suppliers.

The EPF, also known as reverse factoring and supply chain financing, allowed suppliers to be paid earlier, in return for a discounted payment. 

Field鈥檚 co-chair Rachel Reeves, the Labour MP who leads the business select committee, said: 鈥淚t鈥檚 a bitter irony that while Carillion were fully signed up to the government鈥檚 Prompt Payment Code, they were making their suppliers hang on for 120 days or more to be paid.

鈥淐arillion鈥檚 early payment facility ripped off their suppliers, forcing them to accept a cut in what they were owed, and was a blatant attempt by Carillion management to prop up their failing business model.鈥�

Some analysts noted the misclassified funds before Carillion鈥檚 collapse, with Carillion board minutes from April 2015 labelling analysis by bank UBS that factored both the pension deficit and the EPF in to Carillion鈥檚 total debt position 鈥渄isappointing鈥� .

Minutes from May 2015 said the shorting of Carillion鈥檚 shares was up significantly and that the 鈥渂ulk had followed the UBS note in March鈥�.

Santander, which was financing the EPF, withdrew it in December 2017, the month before Carillion went bust.

The bank鈥檚 decision to terminate this facility was one of the factors Carillion directors blamed for the demise.

In a letter to the joint committee inquiry, Santander said the series of events which 鈥渦ndermined Santander鈥檚 confidence in Carillion鈥檚 financial position鈥� included the 鈥渓ack of progress with the restructuring plan鈥� that Santander had provided new bridging finance for and the 鈥渄etailed business and restructuring plans鈥� being further delayed. 

The bank鈥檚 鈥渙utstanding exposure to Carillion in relation to the invoices purchased from suppliers under the programme is 拢91million鈥� which is 鈥渟eparate from Santander鈥檚 committed exposures to Carillion for which we have taken significant additional bad debt provisions鈥�.

Meanwhile, a spokesperson for the Official Receiver confirmed the jobs of a further 129 Carillion staff had been saved.

To date 11,618 jobs have been saved and 2,301 jobs have been made redundant through the liquidation, while just over 3,000 employees are currently retained to enable Carillion to deliver the remaining services it is providing.