Carillion – The Uk’S Second Largest Construction Group In Compulsory Liquidation

Published January 2018

Following the unsuccessful attempt at restructuring the debts of the Wolverhampton based Carillion Group, it has entered compulsory liquidation with the Official Receiver being appointed Liquidator supported by a team of special managers from PWC.

The history of Carillion can be traced back to the Tarmac Group which had by the late 1990s merged a number of well-known companies: Tarmac Construction, Wimpey Construction, Cubitts and Mitchell Construction.  In 1999, the Tarmac Group demerged into a building materials company (‘Tarmac’) and a company focused on support services and construction services (‘Carillion’).  Since 1999, Carillion has gone on to acquire further well-known companies: Mowlem (acquired in 2006), Alfred McAlpine (acquired in 2008), Vanbots (acquired in 2008) and Eaga (acquired in 2011) and had become the second largest construction business in the UK.

Latterly, Carillion won 10 separate contracts worth over £1.3bn after issuing the first of three profit warnings last July which flagged its eventual demise.  Carillion has lost huge sums on large contracts and built up debts of over £1.5bn, which as reported, includes a £587m pension shortfall and £900m owed to RBS, Barclays, HSBC, Lloyds Bank and Santander.

The liquidated Group consists of:

  • Carillion Plc
  • Carillion Construction Limited
  • Carillion Services Limited
  • Planned Maintenance Engineering Limited
  • Carillion Integrated Services Limited
  • Carillion Services 2006 Limited

The size of the failure will have a significant impact on employees, sub-contractors, suppliers & other creditors, clients and customers.  All will be desperate for news from the Liquidator and special managers as to what the future is going to look like and so in this article we try to provide general guidance for stakeholders as to what is likely to happen.

Why Liquidation and not Administration?

Firstly, the purpose of Administration is to enable a company to continue to trade whilst the Administrators attempt to find a buyer for any viable parts of the business.  Liquidation is the insolvency process adopted when it is accepted that the company is to cease trading and it is the job of the liquidator merely to realise any assets that may exist and distribute the proceeds to creditors.

The fact that Carillion went straight into compulsory liquidation makes it clear that there was no business to rescue and that there was nothing that could be sold on a “going concern” basis.

As this is a compulsory liquidation as opposed to a creditors’ voluntary liquidation, the Official Receiver is automatically appointed as the Liquidator. The Official Receiver is a civil servant but may not necessarily have the practicable experience or resources to handle what will be a very complicated liquidation which is why special managers from PWC were appointed to assist him.   

Also, because Carillion was involved in such a large number of Government contracts, the   Government is probably not unhappy that the situation is being headed up by a civil servant.  

Who will be effected?

The liquidation of Carillion will be felt worldwide.  It had 20,000 employees in the UK and another 23,000 outside of the UK working on both Government and private projects globally.  Some of the most high profile projects in the UK were the HS2 high speed rail line where Carillion was one of a number of private companies working on the project and it was lead contractor on a number of major public-private partnerships such as the unfinished Royal Liverpool University and Metropolitan Midland hospitals.

The Federation of Small Businesses is saying that it is vital that small business suppliers are paid what they are owed or some could find themselves in jeopardy putting even more jobs at risk.  The problem is that there is a strict hierarchy of payments to creditors in a liquidation and a liquidator cannot unilaterally decide which creditors should get paid and which should not be paid.

Although the Government is playing it down, there is no doubt that somewhere down the line the tax payer will also suffer costs which could run into £millons, the first of which is footing the immediate wage bill for those working on Government supply contracts.

Carillion Creditors and Sub-contractors – Practical actions

By number, the largest creditor group left being owed substantial sums will be the unsecured creditors in the form of suppliers and sub-contractors.  As a class, unsecured creditors rank lowly in the dividend payment order ranking behind secured creditors such as the banks and preferential creditors such as employees.  In some cases a pool of money known as the prescribed part may be available for unsecured creditors but at this stage, it is unclear what the dividend prospects will be.

The special managers will be needing to work with some creditors and sub-contractors and have set up a web site where they can be contacted at https://www.pwc.co.uk/carillion  Creditors and sub-contractors should make contact with the special managers as soon as possible by email through the above link.

Any creditor or sub-contractor asked to continue to work for the special managers needs to ensure they get a new purchase order from them to ensure payment for the future work done.  In rare circumstances a supplier or sub-contractor may be in the privileged position that there is no one else that can supply particular goods or services, in which case, it may be possible to negotiate revised or higher rates to continue to supply such goods or services.

The liquidation of Carillion prevents the usual legal remedies to recover a debt being available as no new legal proceedings can be taken and any existing legal proceedings are suspended with neither being able to be taken forward without the permission of the court.

There may have been two way trading between a creditor or sub-contractor and Carillion in which case, in certain circumstances, it may be possible to claim Set-off which means that a creditor or sub-contractor that owes money to Carillion can offset that liability against money it is owed.  It is important to note however, that there can only be set-off between individual companies and not across the Group.

Any Contracts held need to be reviewed as it is likely there will be liquidation termination clauses setting out what happens on the liquidation of either party.  It is probable that the contract terminates on liquidation.

The terms of any Contract should also be reviewed to check whether they contain a Retention of Title clause.  This may allow the supplier of goods that have not been paid for, or in some cases that have been paid for, to recover or repossess the goods supplied or receive payment for them by the special managers if they are still required.  It is vital that early contact is established and a physical inspection undertaken and documented to identify any such goods.  A fuller description of Retention of Title can be found at:

https://www.insolvencydirect.bis.gov.uk/casehelpmanual/R/RetentionOfTitle.htm

Employees

Employees are a special type of creditor and up to statutory limits unpaid wages, holiday pay, pension contributions, redundancy and pay in lieu of notice will be paid by the Government through the Redundancy Payment Fund.  Details of the statutory limits that will be paid can be found at:

https://www.gov.uk/your-rights-if-your-employer-is-insolvent/claiming-money-owed-to-you

Carillion Shareholders

Unsurprising, the special managers have already confirmed that there is no prospect of shareholders recovering any of their investment and therefore it is recommended that shareholders speak to their accountant or other advisers to see if there may be any capital loss reliefs available.

Further Help

It is important that directors of companies affected by the liquidation of Carillion take early advice as to their position.  Speaking to an experienced Insolvency Practitioner will enable a director to understand their individual circumstances and how best to maximise recoveries or discuss damage limitation options to protect their own business.  Such discussions will be free of charge and will provide the vital information needed to take the correct decisions.

The Insolvency & Restructuring team at Cranfield Business Recovery is on hand to speak to any director that needs help and any initial meeting is free of charge and without obligation.  Do not wait until it is too late take advice now by calling on of our three Licenced Insolvency Practitioners; Tony Mitchell, Brett Barton or Philip Ballard on 024 7655 3700

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