Carillion went into liquidation in January. We asked our experts what the collapse and treatment of this business tells us.
1. Why liquidation and not administration?
Claire Middlebrook, Middlebrooks: While it would be more usual for a company the size of Carillion to enter administration, the fact that it went straight into compulsory liquidation suggests the directors believed the business model was unsustainable even if the debts were taken away.
Mick Sanders, MHA MacIntyre Hudson: I was initially surprised, but once the reports were published revealing the cash availability levels, it became apparent that liquidation was the right approach, as there was clearly not enough cash availability/projected income to enable an administrator to continue trading and servicing contracts of this magnitude.
2. Could some other form of restructuring or even administration have helped the business to survive?
Mick Sanders: It appears the banks were approached to provide additional funding, but once they declined it was clear that the Government was unwilling to step in and it’s difficult to see what else could have been done with the dwindling cash position.
Sian Aitken, CMS: While there were concerns about continuation of contracts and job losses, it has been apparent that those contracts can be managed on a case-by-case basis via a combination of up-front funding, contract novation/assignment and by dealing directly with subcontractors…a bail-out would have been difficult to justify.
3. How well did our current insolvency regime deal with the immediate crisis?
Mick Sanders: In reality, it doesn’t matter what procedures are in place if the business has fundamental flaws, is not making sufficient profit (if any) and has insufficient cash flow. With no prospect of further funds being introduced, its prospects of survival are minimal.
Eileen Blackburn, French Duncan: It appears it dealt well with the immediate crisis, although it is now clear that discussions were taking place behind the scenes over an extended period of time. The process leading to the appointment of the provisional liquidators was short-circuited and the appointments made much more rapidly than would normally be the case.
4. What is the practitioners’ view of the action taken by the banks (e.g. Lloyds Banking Group) to help Carillion subcontractors and suppliers?
Mick Sanders: The position taken by the banks is a positive one and should be commended. This obviously will help with their short-term cash flow and may well stop those businesses from failing.
Alistair Dickson, RSM: Lloyds responded to the situation positively and this will help a number of businesses in the short term. However, any funding support will need to be repaid.
5. How about the role of the Government?
Claire Middlebrook: The Government has some serious questions to answer. In an age where transparency is key, how on Earth could Carillion have been allowed to continue to be awarded work, even after profit warnings as far back as 2016?
Eileen Blackburn: The Government has refused a “bail-out”, but the latest advice from PWC is that employees and suppliers should continue to provide goods, services and labour as normal or “until advised otherwise”. It does suggest that although there may not be a Government bail-out, someone, somewhere is underwriting the post-appointment costs.
Sian Aitken: There has been much discussion around Carillion’s dividends. Legislation precludes payment of dividends unless there are distributable reserves and also provides the liquidator with a variety of tools in order to challenge and unwind pre-insolvency transactions. No doubt the official receiver’s office and the special managers will be considering all.
This article was originally published on ICAS.com.