Listen: The large scale insolvency of Carillion is in the news. Andrew Cawkwell, Insolvency Solicitor at Newtons talks to Stray FM about the potential losses in the supply chain.

Posted 29th January 2018

Written by Andrew Cawkwell - Insolvency Solicitor - Newtons Solicitors

Andrew Cawkwell at Newtons Solicitors

Yesterday saw the devastating news for 20,000 employees and countless other companies in the supply chain of the immediate compulsory liquidation of Carillion. PWC have been appointed in conjunction with Official Receiver to support the delivery of the ongoing work streams in view of the complexity of the case. This is a partnership which was formed following the failure of SSI – the steelworks at Redcar. Carillion plc, the multi-national facilities management and construction services company is the second-largest construction company in the UK with around 20,000 UK employees. Andrew Cawkwell, Insolvency Solicitor at Newtons, discusses the potential financial losses to Carillion’s 30,000 or so suppliers.

Key Areas of Interest

There are four key areas of interest in this case:
1. The first is the impact of company liquidation on employees.
2. The second is the impact on trade creditors of Carillion who were owed money on the day the company went into liquidation.
3. The third is the impact upon companies who are asked to provide ongoing labour and materials in relation to projects which will continue to be fulfilled with the benefit of ongoing government funds.
4. The fourth is the steps which a business which has suffered a bad debt from Carillion needs to take to manage its own position.

Employees

The legal effect of the compulsory liquidation is to by operation of law terminate all existing contracts of employment. However, it has been indicated that certain contracts will be ongoing and that employees are asked to continue to turn up for work. The concept of continued trading and fulfilment of contracts is alien to a compulsory liquidation which ordinarily envisages the entire shutdown of a company and cessation of trade. This is clearly not an ordinary case however.

Advice from the website of the special manager indicates that employees should continue to turn up for work and that the employment will continue on the same terms and conditions. Practically speaking the key to the matter will be to try and obtain some direct confirmation from Carillion (either acting by the Official receiver or Special Manager) that an individual’s employment will be continued on the same terms and conditions. In other words, do not rely absolutely on the general statement on the website but try and obtain something specific in writing to that effect. The relevant email address is employees.carillion@uk.pwc.com

Creditors

You will need to register as a creditor in the liquidation if:
• you haven’t been paid for goods or services you’ve supplied to the Carillion companies in liquidation
• you have paid these companies for goods or services that you haven’t received

Providing ongoing labour and materials

The Special Manager advises that the Companies are continuing to trade:

“Unless advised otherwise, all agents, subcontractors and suppliers should continue to work and provide goods and services as normal, under their existing contracts, terms and conditions. You will get paid for goods and services you supply from 15 January 2018. Over the coming days we will review supplier contracts and we’ll contact you concerning these soon. Goods and services you supply during the liquidation will be paid for. A letter will be sent to suppliers shortly containing further instructions. In the first instance, please speak to your usual contact at the Companies. Matters requiring the specific attention of the Special Managers can be sent to: sharedservices.carillion@uk.pwc.com

It is important that suppliers push for confirmation in writing that their usual terms and conditions of supply are varied to the effect that the monies payable by the companies are paid as an expense of the liquidation. That is to say that they rank higher in terms of the statutory order of priority than as an ordinary unsecured creditor and is effectively the complete legal confirmation that is required that you will get paid.

Impact for companies who have suffered bad debts

Finally, any company which has suffered a bad debt as a result of the failure of Carillion will need to examine its own finances and ensure that it has adequate working capital available to meet its ongoing commitments as they fall due for payment. It is important that the directors of those companies take appropriate professional advice from licensed insolvency practitioners and/or insolvency solicitors and/or turnaround practitioners to ensure that they have adequate support available to meet their fiduciary obligations. In the main, a company which is suffering financial distress has a duty to act in the best interests of its creditors and this is duty is usually best discharged by attempting to maximise the value of the business and its assets for the creditors of the company.

You can listen to Andrew discuss Carillion’s insolvency with Stray FM in the clip below. If you are a company that needs to speak with an insolvency legal expert, or an employee who needs employment law advice in the face of employer insolvency, please contact our team today.