The collapse of the UK’s second largest construction company, Carillion, was not particularly surprising given recent profit warnings and debts believed to be in the region of £1.5 billion.

What happened to Carillion

It was rumoured over the weekend that in the absence of refinancing, Carillion would be placed into administration. This process would have given the various companies within the Carillion group the benefit of a statutory moratorium against creditor action, which would have allowed the opportunity for the businesses to be traded out of insolvency and/or sold on.

However, as events unfolded it would appear that the state of the business was far worse than envisaged, to the extent that liquidation was the only realistic option. The High Court has this morning ordered the compulsory liquidation of the various Carillion companies, appointing the Official Receiver as liquidator and several insolvency practitioners from PwC as special managers.

What happens next?

An issue that will need to be immediately addressed is the likely termination of existing contracts on the grounds of insolvency, which will affect thousands of employees as well as creditors.

The liquidator will be looking to realise assets for the benefit of Carillion’s numerous creditors, which clearly represents an opportunity for rival businesses. Such realisations however may not reduce the risk of insolvency for those suppliers, contractors and other creditors owed monies by Carillion, many of whom will be unsecured and uninsured.