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.
The Pugachev tale
Carillion’s entry in to liquidation is likely to have ramifications for all the actors in the construction industry for some time to come. The most immediate impact will concern payments. The aim of the Housing Grants, Construction and Regeneration Act 1996 (amended by the Local Democracy Economic Development and Construction Act 2009 - generically, ‘the Act’) is to ensure that cash keeps moving in the construction industry, but what happens when a main contractor becomes insolvent?
In the recent case of R (Monarch Airlines Limited (in administration)) v Airport Coordination Limited [2017] EWCA Civ 1892, the Court of Appeal considered whether an airline that had fallen into administration could still be allocated valuable slots at airports.
“There’s a magical place, we’re on our way there, with toys in their millions, all under one roof – it’s called… Toys R Us!”
The lyrics resonate with millions worldwide. The advert is as iconic as Coca Cola’s “Holidays Are Coming” commercial or the Sainsbury’s “Christmas is for sharing” World War 1 cinematic ad. Sadly, there is no longer a magical place aura emanating from the retail giant, but a sobering reality that its financial disarray may lead to the company’s demise.
The special administrators of MFGUK have come up with a CVA proposal for its remaining ordinary creditors, which will enable the winding-up of the estate to the benefit of the creditors.
The administrators have made a number of material settlements and realisations during the administration, simplifying the estate and permitting distributions to ordinary unsecured creditors of 90p in the pound.
Case Study: US-based unsecured creditor proactively protects its position and recoveries from the liquidation of its UK distributor
When a company enters into an insolvency process in the UK, the position of unsecured creditors is typically one of uncertainty. Ranking fifth1 in the insolvency payment waterfall, unsecured creditors frequently find themselves out of the money. Even in cases where there are sufficient realizations to make a distribution to unsecured creditors, they may receive only a minimal amount in respect of their outstanding debts.
Background
Urbisity Ltd (the “Company”) was a developer of up market apartments. The Company funded its developments through various loans and its two directors, Nicholas Mullen (“NM”) and Christopher White (“CW”) acted as guarantors. Following the credit crunch, sales waned and, without substantial equity, the Company began selling property it owned and borrowing money from family members, one of which was NM’s father, Francis Mullen (“FM”).
This article was first published for Thomson Reuters' Practical Law Dispute Resolution Blog.
ADVISORY | DISPUTES | TRANSACTIONS Restructuring and insolvency roundup January 2018 In this roundup, we consider four cases with implications for all those involved in the restructuring and insolvency sector. This edition includes an article on crowdfunding, a sector which continues to be of interest to practitioners giving the changing regulatory landscape and the risk to investors. Other cases include two Court of Appeal decisions and cover privilege in bankruptcy, the adequacy of ATE policies, and the requirement for boards to be quorate when directors appoint administrators.