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Last edited 12 Feb 2018
On 15 January 2018, a winding up order was made against integrated support services business Carillion Plc and the Official Receiver was appointed by the court as the liquidator. PwC will act on behalf of the Official Receiver, and they have set up a website to provide more information as it becomes available https://www.pwc.co.uk/carillion.
A web page has also been set up by the Insolvency Service for those affected https://www.gov.uk/government/news/carillion-declares-insolvency-information-for-employees-creditors-and-suppliers
Carillion employs 43,000 people, operating in the UK, Canada and Middle East, and has annual revenues of more than £5bn. It offers support services, project finance and construction, working in a number of key business segments:
- Facilities management.
- Energy services.
- Rail services.
- Road maintenance.
- Public Private Partnership (PPP) projects, including; defence, health, education and transport.
- Construction services, including; consultancy, building, civil engineering and development.
Carillion was established in 1999 by the separation of the Tarmac Group into Tarmac, a materials company, and Carillion, a support and construction services company. Carillion went on to acquire Mowlem in 2006, Alfred McAlpine and Vanbots in 2008 and Eaga in 2011.
However, the company made a pre-tax loss of £1.1bn in the first half of 2017 and owes £900m to RBS, Barclays, HSBC, Lloyds and Santander. It also has a £600m pension deficit. Discussions about a rescue package failed to reach agreement to save the company. PwC stated that; 'unfortunately, as a result of the liquidation appointments, there is no prospect of any return to shareholders'.
Projects Carillion is involved in that will cause concern to the government include the HS2 high-speed rail line, and the management of schools and prisons. It has been suggested that some of these contracts could be taken on by other companies, and some might be taken under government control, with the government already having committed to provide funding to maintain public services run by Carillion.
Chairman of Carillion, Philip Green said: “Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future... In recent days however we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision. We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers.”
However, the Labour Party has asked whether proper due diligence was carried out before £2bn of contracts were awarded to Carillion, which has been known to be in financial difficulties for some time, It issued its first profit warning in July 2017. A week later, it was part of a joint venture awarded a £1.4bn contract for HS2. Further profit warnings were issued by the company in September and November 2017.
Shadow Cabinet Office minister, Jon Trickett said; “Alarm bells have been ringing for over six months about the state of Carillion’s finances, so the government must come forward and answer questions on exactly what due diligence measures were undertaken before awarding contracts to Carillion worth billions of taxpayers’ money.”
 January 2018
David Birne, insolvency partner at H W Fisher & Company said; “For a company of Carillion’s size, it is extremely rare to opt for a liquidation rather than an administration – and a compulsory liquidation at that. It suggests there is little, if anything, of value within the company to be saved. Almost every big insolvency in recent years has been a move towards administration rather than liquidation. (Ref. http://www.constructionmanagermagazine.com/news/it-extremely-rare-opt-liquidation/)
It was later reported that by 15 January, Carillion's remaining funds stood at just £29 million, giving it insufficient cash to appoint an administrator.
In the immediate aftermath of Carillion's collapse, concerns have been raised about the number of suppliers and other small businesses who may face bankruptcy. In 2016, Carillion spent £952m with local suppliers and an extensive network of SMEs, with Build UK estimating that 25,000-30,000 firms could be awaiting payment.
In the Commons, Cabinet Office minister David Lidington was forced to defend the government against accusations of a lack of oversight in awarding Carillion further public sector contracts despite profit warnings. Mr Lidington said that the government would pay employees and small businesses working on the firm's public contracts, however, companies working on private projects would only receive a 48-hour 'grace period'.
The Labour leader, Jeremy Corbyn, called Carillion’s collapse a “watershed moment”, adding that it was “time to put an end to the rip-off privatisation policies that have done serious damage to our public services and fleeced the public of billions of pounds”.
Vince Cable, the Liberal Democrat leader who, as Business Secretary in the coalition government awarded several PFI contracts to Carillion, said: “The government has mismanaged contracts so that fat cat bosses are able to get away with millions, hedge funds are able to make millions, while their jobs are at risk.”
On 16 January, Business Secretary Greg Clark confirmed he had asked the Insolvency Service to fast-track an investigation into Carillion’s directors and to broaden the scope to include previously-employed directors. He also wrote to the Financial Reporting Council (FRC), asking it to conduct an investigation into the preparation of Carillion’s accounts, as well as the company’s auditors. (Ref. https://www.gov.uk/government/news/business-secretary-outlines-departmental-action-following-carillion-liquidation)
On 16 January, Carillion Canada, which employs 6,000 people released a statement clarifying that; "...Carillion's Canadian operations are not in liquidation and continue uninterrupted. Our employees, subcontractors and suppliers in Canada continue to be paid and we remain committed to delivering safe, quality services for our clients. Our Canadian leadership is currently assessing the situation and working with stakeholders to ensure continuity of operations." (Ref. http://www.carillion.ca/news-and-media/news/2018/update-on-carillions-canadian-operations.aspx#.WmDH26hl_7B)
On 17 January, it was announced that Lloyds Banking Group, HSBC and RBS had set up finds totalling £225m to help Carillion subcontractors, and that they would waive fees and suspend loan repayments where necessary. (Ref. https://www.gov.uk/government/news/business-secretary-welcomes-action-by-banks-to-support-small-businesses-affected-by-carillion)
On 18 January, the Business Secretary Greg Clark chaired a new taskforce which was set up to monitor and advise on mitigating the impacts of Carillion’s liquidation on construction firms, particularly SMEs and those working in the sector. The taskforce’s attendees included representatives from leading business bodies, the construction trade sector, unions, banks and government.
The taskforce will act as a means to collaborate and ensure the impact of the Carillion insolvency on the firm’s employees in the private, as well as public, sector is minimised and to help them recover. (Ref. https://www.gov.uk/government/news/business-secretary-chairs-first-taskforce-to-support-small-businesses-and-workers-affected-by-carillion-insolvency)
 February 2018
On the 2nd February 2018, the Official Receiver said that more than 919 jobs have been saved, but that 377 more have been made redundant and are now being told to contact the JobCentre. Those whose jobs have been saved are being transferred to new employers who have taken on the infrastructure, central and local government, and construction contracts.
Regarding the remaining Carillion staff employed in the UK, of which there were almost 20,000, a spokesperson for the Official Receiver said:
“I am expecting many employees working on other Carillion contracts to transfer in the coming weeks and we are continuing to keep the workforce updated as these are arrangements are finalised.”
On 5 February 2018, it was announced that a further 452 employees had been made redundant, whilst a further 100 employees jobs have been saved.
On 8 February 2018, the Official Receiver, announced it had safeguarded a further 1,221 jobs but that an additional 101 employees had been made redundant.
On 6 February 2018, a joint inquiry by two Commons select committees held its first session, with evidence provided to MPs from seven former Carillion directors.
Reflecting on how Carillion's debts amounted along with its pension deficit, the Work and Pensions Committee chair Frank Field accused the former finance director Zafar Khan of being "asleep at the wheel". Khan denied the accusation.
Keith Cochrane, who was appointed interim Chief Executive after the group issued its July 2017 profit warning, conceded that if they had suspended shareholder dividends it "would have made a difference, possibly". But he denied prioritising the interests of shareholders above those of the 27,000 pension scheme members.
Regarding whether the board should have done more to raise flags about Carillion's position, Cochrane said; “Clearly with the benefit of hindsight, should the board have been asking further, more probing questions, perhaps... Clearly the business did have issues. Do I wish we’d done something about it sooner, absolutely. At the time, all the decisions I took were seeking to do the best thing for the business.”
On 7 February 2018, the extent of the claims being pursued by Carillion's board were revealed in the business plan that had been put to banks and government prior to its collapse. Totalling some £262 million, the seven major contract claims that Carillion believed it would receive were:
- Midlands Metropolitan Hospital – £33m (problems with building services).
- Royal Liverpool Hospital – £43m (including recovery of claims following problems with concrete beams).
- Aberdeen Western Peripheral Route – £40m
- Battersea Power Station – £16m (phase one was delivered nearly a year late).
- PF2 Schools – £5m
- Msheireb, Qatar – £97m
- Toronto Transit Commission £28m
The Official Receiver may be able to pursue these outstanding claims, although since they were being contested, and because claims are usually written off following corporate collapse, the exact amount that may be successfully received remains to be seen.
 Related articles on Designing Buildings Wiki
- Advance payment bond.
- Battersea Power Station.
- Capita plc.
- Collateral warranties.
- Liquidation of contractors in the construction industry.
- Off site goods and materials.
- Off-site goods and materials - legal issues.
- Parent company guarantees.
- Performance bonds.
- Project bank accounts.
- Retention of title.
- Step in rights.
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