Carillion is, or was, the second largest construction firm in the UK. It’s collapse on Monday 15 January 2017 was confirmed when the High Court ordered the compulsory liquidation of the various companies in the group. It employed 20,000 people and the projects of the business included the HS2 rail project, Battersea Power Station redevelopment, military contracts and the maintenance of schools, prisons and hospitals. So, what happens now?
Carillion outsourced projects to a significant number of smaller businesses and spent £952million with local suppliers in 2016. The construction giant stated that this demonstrated its commitment to generating economic growth and development. Many of these firms are now waiting in the wings to learn if they will be paid. It has been suggested that the small suppliers are already out of pocket due to being made to wait 120 days for payment. For small business owners, extending this sort of credit may put the entire business at risk.
The BBC reported on 16 January 2017 that Cabinet Office Minister David Lidington said there would be Government support for public sector contracts. This means that employees will be paid. However, this will only extend to two days and does not extend to companies working on private projects.
It was well known that Carillion was experiencing financial difficulty. Last year, the company issued three profit warnings, had debts of approximately £1billion and a £600million pension deficit. Richard Howson was the company’s chief executive until he stepped down in July 2017, after the first profit warning was issued. He will continue to be paid until October this year fuelling increasing criticism about executive pay. It will be interesting to see whether this leads to greater shareholder engagement regarding director’s pay, particularly in companies which are not performing well.
The Government is also likely to come under scrutiny as it encouraged small businesses to get involved with Carillion and continued to award several billion-pound contracts to them, even after substantial financial issues were reported.
Accountancy firm PwC is overseeing the liquidation and made the following statement:
“Unless told otherwise, all employees, agents and sub-contractor are being asked to continue to work as normal and they will be paid for the work they do during liquidations.”
Contrary to this, there have been reports where workers attended projects and were told to go home. Redundancies have also already begun, for example, Flora-tec is a landscaping services company which Carillion owes £800,000. They were forced to make 10 people redundant when the collapse was announced.
It is PwC’s job to sell Carillion’s assets, and to try to satisfy the many creditors to which debts are owed. It is not clear whether this will prevent suppliers becoming insolvent, which may depend on whether the debts are secured and if insurance for such an event was in place. As with all liquidations, it is highly unlikely that there will be sufficient funds available to pay everyone what they are owed.