Carillion and the stubborn facts
High-profile bankruptcies and financial calamities are frequently met with retrospective “no one saw it coming” analysis and commentary. While the ready-made stock comment may be convenient for those who genuinely didn’t know, those who didn’t know but should have, as well as those who did but choose to remain silent, it is seldom the case. Chris Bryant of Bloomberg wrote an excellent article on the collapse of British construction firm Carillion in May 2018 that makes the inconvenient truth abundantly clear. There were many who knew Carillion was financially unsustainable before the collapse and said so, but were ignored by all but short sellers.
Carillion was not a structurally complex organization with layers of HoldCos to obscure the finances. It was relatively simple for analysts to determine that the company was in trouble despite the “flattering portrait” of the company’s financial health painted by the financial statements.
The larger lesson may be that investors and regulators ignore facts at their own peril. Sooner or later, the truth comes out.
Mr. Bryant's article Hedge Funds are the Good Guys in the Carillion Debacle.