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.
Despite the Treasury’s comparison of independent forecasts for the UK economy showing an overall upturn for January 2018, there appears to be a nasty outbreak of bad weather looming. Close on the heels of the reported financial woes of Toys R Us and House of Fraser comes the news of the fashion retailer New Look and now, massively, Carillion.
Following recent media reports, with effect from Monday 15 January 2018 the Official Receiver has been appointed liquidator of a number of Carillion Group companies (Carillion Plc, Carillion Construction Limited, Carillion Services Limited, Planned Maintenance Engineering Limited, Carillion Integrated Services Limited and Carillion Services 2006 Limited). The Official Receiver will be supported by a number of Special Managers from PwC.
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.
As has been widely reported, Carillion companies are being liquidated. This will affect their suppliers and the extended supply chain, including suppliers of contract workers and CIS subcontractors. There will be a lot of focus on debt and enforceability of things like pay when paid clauses (which, contrary to popular belief, are not always enforceable).
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.