KPMG is being sued for £1.3billion by government officials liquidating collapsed contractor Carillion, in an unprecedented legal action against one of the big four auditors.

Carillion’ collapsed in January 2018 with £7billion in debt leading to 3,000 job losses and chaos in government and private sector construction projects ranging from hospitals, schools, roads and even work on Liverpool Football Club’s stadium, Anfield.

The scandal also led to scrutiny of the role of auditors, including those at KPMG who produced unqualified audit opinions even as risks piled up on Carillion’s balance sheet. Several failures and many subsequent investigations prompted the government to revise UK audit regulations.

The £1.3billion audit negligence claim includes dividends worth £210million paid by Carillion which would not have been justifiable had auditors pointed to the true extent of the its financial peril, plus business losses of almost £1.1billion suffered as the group wrongly continued to trade when it should have been declared insolvent, according to ‘claim details’ – details of the case – filed by counsel for the Official Receiver.

KPMG received £29m for its audit work for Carillion over 19 years without ever qualifying its opinion. Accountants can qualify audit opinions — inserting caveats that warn of concerns — if they find a serious problem with company disclosures.

“The precise reasons for KPMG’s failures are unclear, pending further information,” the plaintiffs said, but argued that the accounting firm had failed to maintain its independence from Chime.

In particular, then-Senior Audit Partner Peter Meehan “repeatedly accepted and offered hospitality from Carillion and its senior management, failed to respect the proper boundaries of the auditor/ customer, [and] offered assistance to senior management to take the numbers ‘beyond’ the audit committee”.

Meehan is also accused of backdating an audit opinion on a Carillion construction subsidiary.

The UK’s official receiver, a government official, brought the action as part of its duty to try to maximize returns for creditors.

A spokesperson for the Receiver said: “Following extensive inquiries into the causes of Carillion’s liquidation, the Official Receiver has lodged a complaint with the High Court regarding KPMG’s role as auditor of the society.

“The Official Receiver has taken this action in the interest of creditors who have suffered substantial losses in the liquidation. The decision is based on legal advice that KPMG is liable to Carillion’s creditors for the losses that have been caused.

Losing the case could present financial liabilities for KPMG that would far eclipse the fines imposed related to previous accounting scandals. He was fined £3m in January for failings in his audit of Bargain owner Booze Conviviality, and last year he received a near-record £13m fine linked to the sale of the bed manufacturer Silentnight.

Scandals aside, KPMG has reported booming trade in recent months, driven by rising fees for advising on corporate mergers and acquisitions. The average distribution to UK partners increased by 20% from £572,000 in 2020 to £688,000 in 2021.

The accountancy firm is in the unusual position of having already admitted that misconduct occurred in connection with the Carillion audit. Last month, KPMG UK chief executive Jon Holt said it was “clear” misconduct had occurred and apologized after the Financial Reporting Council, the accounting regulator, charged five former KPMG auditors of fault.

The court heard weeks of evidence, including allegations that the five former KPMG auditors, including Meehan, were involved in falsifying documents sent to the regulator shortly before Carillion’s collapse to cover up shortcomings in auditing.

During the court, KPMG consistently tried to distinguish between the audit itself and the alleged misconduct that followed. It did not recognize any breach directly related to the audit.

The company should argue that the Official Receiver is trying to use it effectively as an insurance policy to cover losses from an ill-conceived corporate strategy that was the sole responsibility of Carillion’s board of directors. Eight former directors of Carillion are facing legal action from the Insolvency Service to prevent them from serving as directors. They dispute the action.

A spokesman for KPMG UK said: ‘We believe this claim is without merit and we will vigorously defend the case. The blame for Carillion’s failure rests solely with the company’s board of directors and management, who set the strategy and led the company.

Meehan was approached for comment via his lawyer.