Construction industry braced for Carillion insolvency
The well-publicised liquidation of Carillion and appointment of partners at PwC with day-to-day control represents one of the biggest failures of a private sector company this decade and certainly the biggest since the collapse of BHS. As the Government, local councils and liquidators burn the midnight oil to keep UK public services operating, what are the implications for businesses at the 'sharp end', especially those holding contracts with Carillion?
Liquidation can mean close-down albeit, here, a limited amount of continued trading might be possible and as the press has speculated, the UK Government will keep parts of Carillion operating, although for how long, no one knows. The suggestion, as we go to press, is that private sector contracts (which make up around 60% of Carillion's business) might be terminated within 48 hours (i.e. by the middle of this week). The appointment of PwC means that they, acting liquidators, are now in control and they will be tasked to liquidate assets in a reasonable period of time, whilst terminating unprofitable contracts.
Meanwhile, the Government has promised that Carillion’s public sector contracts will continue to operate, under the Official Receiver’s control, with the Government providing funding to maintain a number of public services.
When such a large company enters liquidation the shockwaves are felt throughout the supply chain. Carillion is the second largest construction company in the UK and a truly global company, with operations in countries including Canada and the Middle East. Within the UK, Carillion had won a number of major high-profile public sector works including the HS2 high-speed rail line and it was also awarded the private sector contracts for several high-profile projects including the Battersea Power Station redevelopments and the new main stand at Liverpool FC's Anfield stadium.
These shockwaves are likely to continue to be felt throughout the industry by many businesses that worked with Carillion, and of course the employees who number nearly 20,000 in the UK.
Where a company has contracted with Carillion (directly or as part of a large supply chain), it should quickly establish that the entity it has contracted with has actually entered liquidation; Carillion is a group of companies and will have many companies within this group. Blake Morgan has access to up to date portals that can provide this information if necessary. As ever, the detail is crucial in determining what action to take and the first step must be to check the identity of your contracting party.
If the relevant Carillion company has entered liquidation it will likely mean that it has stopped trading. This will have significant implications for any party that is in contract with that company. The respective positions of employers (clients) and suppliers (sub-contractors and the like) need to be contrasted:-
- An employer should be extremely alert to the possibility (probability, even) that the company has stopped trading; the employer should review the contract terms because almost certainly the liquidation will enable you to take steps to terminate the contract (as will be the position under many standard-form contracts). This is important because you can quickly re-start the project choosing a replacement contractor, once the appropriate termination steps, usually prescribed in the contract, have been taken.
- A supplier (goods, services or whatever) should take immediate steps to contact PwC and in the meantime, look at all forms of 'self-help' to mitigate further losses. That could include protecting and removing equipment from site unless you have an agreement to pay; similarly, you should look at removing employees, unless there is a clear commitment to pay. As things stand, at the time of going to press, Carillion is saying that, unless advised otherwise, all agents, subcontractors and suppliers should continue to work and provide goods and services as normal, under their existing contracts, terms and conditions (with a 're-direct' to pwc.co.uk/carillion for information). Whilst the natural temptation, for a supplier who is out of pocket, may be to 'down tools' without reference to the liquidators, such action should not be taken outside the contract terms (or without taking advice). Such action may not improve the supplier's situation; and worse, it could leave the supplier itself open to claims.
Furthermore, if Carillion was working on your development and maintaining the security, the simplest interim measure maybe to contract directly with the security provider, whilst medium term provision is reviewed.
Since the liquidator will look to sell the assets of a company, we would expect that the vast numbers of the profitable contracts or projects are novated or assigned. With debts reported to be in the region of £1.5 billion, the liquidators will be looking to effect 'sales' of some of the more profitable contracts in order to maximise assets for creditors. This can happen quickly and may well lead to some worthwhile investment opportunities for other players in the sector.
For further information please call Richard Wade (partner, Head of Construction) on 01865 254244) (firstname.lastname@example.org) and for questions relating to the liquidation, Paul Caldicott (partner, Head of Insolvency) on 029 2068 6181 (email@example.com).