Interserve Insolvency – Carillion Revisited?
Following the demise of Carillion last year, today Interserve PLC (Interserve) has lost a crucial shareholder vote which means that it is likely to be placed into administration today.
Interserve, like Carillion, is one of the UK's largest providers of public services and is another major government contractor. It has contracts to provide probationary, cleaning, and healthcare services across the UK, and is also involved in infrastructure and construction projects. It employs over 65,000 people worldwide, 45,000 of which are in the UK.
However, it is presently drowning in debts of approximately £650m. Today, the shareholders voted to reject a proposal to swap debt for equity, which would have seen £480m new shares issued which in turn would have reduced Interserve's debts to £275m. This proposal means that Interserve's creditors would each receive new shares in exchange for current debt, and whilst it means that lenders would receive greater control, its existing shareholders would be left with diluted shares of approximately 5% of the company's worth. However, at lunchtime today, the shareholders voted against the proposal.
Given that the rescue plan has been rejected, it is likely that the directors of Interserve will need to make an application to the Court to place Interserve into administration. At present, it is understood that the intention is for Insolvency Practitioners at EY will be appointed as administrators of Interserve, and intend to sell the business and assets of Interserve as a going concern. It is likely that such a sale would be to Interserve's lenders (who include HSBC and RBS), however once appointed, the Administrators will have a duty to act in the best interests of the creditors as a whole. If a sale can be completed immediately, then fewer jobs will be lost, and essential services should be uninterrupted.
Unlike Carillion, which went into a compulsory liquidation, where a company goes into administration, the effects are unlikely to be quite so catastrophic. When a company goes into liquidation, contracts are terminated and the company can no longer continue to trade, which can have a shockwave effect on other suppliers and contractors. However, when a company goes into administration, it is possible for the administrators, where appropriate, to continue to trade the business until a suitable purchaser is identified, or until such time as the assets are sold. Therefore it is possible for services to continue to be provided, notwithstanding the appointment of administrators.
However, some of the effects may be felt as follows:
- Employees of Interserve should be aware that their contracts may be terminated, or they may be transferred to a new employer under TUPE provisions.
- Employers should be aware that there may be specific termination clauses in their contracts with Interserve, which may provide for an automatic termination upon the event of insolvency. This means that employers have the opportunity to either renegotiate the terms of the contract with the purchasers of Interserve's business, or to negotiate new contracts with other contractors. This also shows possible opportunities for competitors of Interserve.
- A supplier should also check the terms of their contracts, and in particular whether there are any clauses allowing for retention of title over assets, until such time as payment is received. It may be that suppliers will need to consider taking steps to protect and remove equipment and materials until such time as there is an acceptable agreement to pay.
Blake Morgan has the expertise to help and advise in respect of all of these issues, and can provide support to companies who may be affected by the collapse of Interserve.