Carillion has announced that it is to go into liquidation with immediate effect. The firm works on high profile infrastructure projects like HS2 and other major government projects such as building hospitals and schools. The Wolverhampton-based company is the UK's second largest builder and employs 43,000 people globally, with some 19,000 in the UK alone. Significantly for the construction industry, thousands of subcontractors are also dependent on the business.
In 2016 it had sales of £5.2bn and until July boasted a market capitalisation of almost £1bn. So what has happened? The company has seen losses on risky contract, accounting errors and a downturn in some of its key markets such as the Middle East.
The company has a debt burden of £1.5bn and the banks have not shown willingness to extend any further credit since it had a reprieve in December.
Urgent talks with the company's lenders have failed, resulting in the company announcing that it is to go into liquidation. The Government can do little except plan how it is going to take back projects or find alternative suppliers for the contracts. Given its high profile and its role in providing public sector services, the political fallout will be significant. Questions will be asked as to how it was awarded contracts so soon after it revealed huge losses and its massive debt burden.
Following its liquidation, it is likely that many of the larger, but not all, of the contracts including the staff working on them, will be taken over by another contractor like Kier Construction. Alternatively, organisations like Transport for London could take over their engineers. None of these solutions will be ideal and it is likely that thousands will lose their jobs.
What about subcontractors?
They will suffer the most as they are the "flexible workforce" of the construction sector and will be simply dropped without any compensation.
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The smaller more aged contracts will probably be disclaimed by the provisional liquidators/special managers this means the contracts will need to be picked up by new tendering. This will almost certainly mean that thousands of subcontractors will not be paid for 30-90 days PLUS their work in progress. This could lead to serious cashflow difficulties for many.
Our advice would be to not extend any more credit at this stage but if the loss of the work results in distress for your business then get in contact urgently on 01289 309431 as there are options that you can consider to help a viable business survive the fallout. Even during an orderly close down it is likely that payments will be delayed.
Given the size of this company, it is likely that any subcontractor in the construction industry could have some exposure. A direct subcontractor could be subcontracting further their own work so all subcontractors need to be vigilant as to their payment terms.
What about employees?
Watch the video below to explain your rights. If you lose your job as a result of the liquidation you will be entitled to compensation and any arrears of pay. See this page for more information.
What about Pensioners?
The PPF said it was aware news of the liquidation would "raise serious concerns for all people involved".
But it did go on to say; "We want to reassure members of Carillion's defined benefit pension schemes that their benefits are protected by the PPF."
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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.