Carillion rescue hopes were undermined by British banks, court documents show

By Andrew MacAskill and Ben Martin

LONDON (Reuters) - The collapse of Carillion came only days after one of the British group's main lenders, Royal Bank of Scotland (RBS), tightened terms on its funding, court documents show.

The RBS decision three days before the collapse served to weaken attempts to protect Carillion's cash position, the construction and services company's interim CEO Keith Cochrane said in a statement submitted to the High Court in London.

RBS took "unilateral action, which in the company's view undermined the group's efforts to conserve cash", Cochrane said.

Carillion collapsed on Monday, throwing hundreds of large projects into doubt and forcing the government to step in to guarantee vital public services in one of Britain's biggest corporate failures.

The company held about 450 government contracts helping to build roads, railways and schools and maintain hospitals before it collapsed under the weight of its debts after a series of construction projects ran into trouble.

Cochrane said the company's cash position was eroded after RBS on Friday proposed that the company make payments to suppliers two days earlier than previously planned. This hit the company's liquidity by between 2 million pounds ($2.75 million) and 20 million pounds, Cochrane added.

RBS declined to comment.

The taxpayer-funded bank has in the past been heavily criticised for its treatment of distressed business customers, with the actions of its Global Restructuring Group the subject of parliamentary scrutiny and legal action.

Santander , another of Carillion's largest lenders, was also singled out for criticism.

Cochrane accused Santander of putting the brakes on Carillion payments, though it later reversed its decision after talks with the company.

Santander said in a statement it was a prudent step and that the bank continuously reviews its lending to reduce exposure to losses.

Talks between Carillion, the government and other stakeholders failed to reach agreement on a "bridging arrangement" last week, according to the documents, which provide a detailed account of the company's six-month demise.

As a result, the stricken company wrote to the government on Saturday to make a final request for short-term funding that would give bosses time to implement a rescue plan.

However, Carillion's fate was sealed on Sunday when the government told directors it would "not be willing to provide such support to the company".

Last-ditch talks with key financial stakeholders also failed to reach a deal and the directors concluded the 200-year-old business was insolvent at a board meeting held the same day.

Carillion owes almost 1.3 billion pounds to its lenders and had only 29 million pounds in cash reserves by Monday, the documents show.

($1 = 0.7262 pounds)

(Reporting By Andrew MacAskill and Ben Martin; Editing by David Goodman)