Carillion, the second largest building contractor in the UK and the lead on a number of key public service contracts, entered into liquidation last week. Various commentators have highlighted poor governance at the company but would the revised UK Corporate Governance Code recently announced by the Financial Reporting Council (FRC) have prevented its collapse?
What caused the collapse?
The collapse of Carillion, plus the publication of the National Audit Office’s (NAO) timely and perceptive report (www.nao.org.uk/wp-content/uploads/2018/01/PFI-and-PF2.pdf) on private finance initiatives (PFI) and Private Finance 2 (PF2), has sparked renewed public focus on the impact of such events on government finances. This has led to some scaremongering from the media:
‘PFI deals costing taxpayers billions.’ BBC, January 18
The collapse of the UK’s second largest construction company, Carillion, was not particularly surprising given recent profit warnings and debts believed to be in the region of £1.5 billion.
What happened to Carillion
A number of companies within the Carillion group have been placed in compulsory liquidation. The Official Receiver has been appointed as liquidator, with support from PwC. It has been confirmed that there is no prospect of any return to shareholders.
Given the size of Carillion, the UK's second-biggest construction company, with 43,000 employees and contracts on a wide range of projects, including a number of flagship infrastructure projects, this will inevitably have a significant impact on the UK construction sector as a whole. Official advice from PwC is:
With the news of major government contractor Carillion's liquidation, we look at the practical steps public bodies should be taking if Carillion is one of their contractors or is part of their supply chains so as to ensure there is as little disruption as possible across their service areas.
Contract review
On 15 January 2018 Carillion PLC and a number of its subsidiary companies (Carillion) went into liquidation, with the High Court appointing the Official Receiver as liquidator and six partners of PWC as special managers.
Those clients who have contracts with Carillion or who are owed money may find the following guidance useful:
In recent months certain restructuring processes have gained quite some notoriety in press headlines in connection with a number of UK businesses. This article provides secured lenders with a brief recap on the key points to note in relation to CVAs (Company Voluntary Arrangements) and what Liquidation means in the context of Carillion.
Retail CVAs
The compulsory liquidation of Carillion is likely to have a wide ranging effect on the construction industry in the UK. The impact may well be felt by other contractors, sub-contractors and suppliers as well as engaged professionals such as architects, engineers and project managers. The insolvency may give rise to calls on bonds or guarantees and affect insurance arrangements.
In this bulletin we summarise what has happened and offer immediate advice.
On 15 January 2018, Carillion, the UK’s second-largest builder and one of the Government’s largest contractors, was placed into compulsory liquidation and the Official Receiver was appointed as liquidator, with Michael John Andrew Jervis, David James Kelly, David Christian Chubb, Peter Dickens, David Matthew Hammond and Russell Downs of PwC being appointed as special managers to assist in the wind down of the business and realisation of its assets.
Construction giant Carillion is headed into liquidation, putting billions of pounds worth of contracts into potential chaos.
The fallout from the failure of the UK’s second largest construction firm will affect many and generate many column inches asking the fundamental question: how could it happen? The truth is, the construction sector remains extremely difficult, and a large failure of this type had been expected by industry watchers for some time.