Halcrow Financial Situation

Halcrow Financial Situation

The long-term sustainability of the Halcrow Pension Scheme is dependent on the financial health of Halcrow. The HPA continuously monitors the Companies House (CoHo) website for postings about Halcrow, and we have found two items that give rise to concern.

1. The 2011 Annual Accounts

The absence of the filing of the Halcrow accounts for 2011, which were due on 30th September 2012 and which should throw light on Halcrow’s financial position (and ability to support the Halcrow Pension Scheme) at the time of the takeover. As well as notifying the HPS trustees, we asked CoHo about this, pointing out the circumstances, and the fact that none of the three Halcrow companies affected by the takeover had filed accounts. We were advised that CoHo were in discussion with the Directors, who had been given a deadline to submit accounts or face criminal charges. However, CoHo declined to reveal the new deadline, saying that this was a matter between CoHo and the directors. HPA challenged this decision, asking “Quis custodiet ipsos custodies” and in reply CoHo has agreed to investigate the request further under the Freedom of Information Act. We are awaiting the outcome.

2. Mortgaging of Halcrow Assets

The second was the filing of a mortgage charge on 20th December 2012 which assigned all of the assets of Halcrow to CH2M Hill (CH2). In 2009 and 2010, mortgage charges were also taken out in December, and redeemed a few months later, for reasons that are not clear, but these actions do not inspire confidence in the company.  In the event the company were declared bankrupt, the position of the HPS as a creditor would be adversely affected. It is unusual for a company to take a charge on the assets of a subsidiary company. It is more usual for a parent company to execute a deed of subordination so that its debt ranks below that of all other creditors. It is unlikely the charge is being taken because of pressure from Hill's bankers. If the bankers were concerned they would simply take a charge in their own favour.

Comment on Halcrow Financial Position at Takeover

CH2M paid more than £100M for a company that was under risk of breaching its banking covenants and go into administration, despite written warnings from pensioners (and probably others) of the need for due diligence.
 
Halcrow had large liabilities, which CH2 might be seeking to avoid. The biggest liability is the pension deficit which is thought to be around £200m in actuarial terms. The deficit funding payments were about £7.5m in 2011 but these are scheduled to increase in accordance with the Recovery Plan agreed with the HPS Trustees.
 
The previous Halcrow accounts also show large liabilities for unlet buildings where they acted as guarantors, and now are required to pick up the tab. The most recent accounts showed this as £6m but the situation on a very long lease could be very much worse. Fully understanding the true values of assets and liabilities could have been more challenging than expected for the new management team.