Legal

Carillion: ‘It is extremely rare to opt for liquidation’

16 January 2018 | By James Kenny

Contracts and employees could be moved quickly (Carillion.com)

The move by Carillion to opt for liquidation rather than administration has been a focus for the legal community, with many expecting contracts and employees to be transferred quickly.

The UK construction giant went into liquidation yesterday (15 January) with the company announcing that it had been unsuccessful in its attempts to secure continuing financial support, and that it had no choice but to enter compulsory liquidation with immediate effect.

Speaking about the outcome and the immediate future, Alexander Wood, partner in the insolvency and business recovery team at law firm Coffin Mew, said that questions needed to be asked of the government as it continued to award large contracts in spite of increasingly ominous signs surrounding the firm.

Wood said: “This situation is an opportunity for Carillion’s competitors. Public sector contracts will likely be taken on directly, meaning employees used for those contracts can transfer across automatically.

“The collapse of Carillion serves as a stark warning to the construction industry. It indicates that no company is ‘safe’ – regardless of size or turnover. But on a deeper level, it raises concerns for the future of the industry, maintenance of public services run by Carillion and the government’s allocation of contracts. Interesting times lie ahead.”

David Birne, insolvency partner at H W Fisher & Company, commented: “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.

“For Carillion’s 43,000 global staff, liquidation means the immediate risk of redundancy. For Carillion it will mean huge breach of contract penalties that could dwarf anything demanded of it by creditors.

“The fact Carillion has opted for a compulsory liquidation suggests the directors of the company may have sought to expedite the process rather than leave their workforce in limbo – and unpaid – for six weeks.

“In this way, at least some of its employees can be moved over to other contractors, particularly where they are working on government contracts, such as HS2 and Crossrail, but there could still be many thousands of workers left looking for a job only three weeks into the new year.”

Dr Jim Mason, associate head of department for the built environment programmes at the University of the West of England, said the failure to embrace new technology may have contributed towards the group’s collapse and that the use of technology such as smart contracts could help prevent a major construction company folding in the future. 

He said: “We need to turn our backs on the bad old ways of doing things. The solutions have been known for a long time but government reports heralding in a new era are gathering dust on the shelves.

“The construction industry has the worst record for embracing technology and there are no good reasons for this to be the case.

“We have the ability to embrace technology and use smart contracts to bring in such improvements as real-time payments and autonomous self governance of contracts using Blockchain-type ledger recording of the myriad of contracts which could be generated.

“It might be that Carillion’s collapse – a fall of one of the titans of the established order – will lead to a better approach. Technology is key to this.”

Comments

Procurement strategies and process must be in the frame here. Procurement professionals have concentrated on bundling work into larger packages for longer periods that effectively exclude most smaller businesses.
This failure of procurement professionals to adopt real sustainable procurement packages has allowed the likes of Carillion to dominate the market with this now catastrophic collapse.

Brian Jukes, 16 January 2018

Leave a comment