The recent liquidation of Carillion is another example of corporate mismanagement resulting in thousands of employees and even more people involved in the supply chain suffering massive losses without any real redress. The Government have suggested that those employees involved in public sector schemes will (in the short term) still be paid: these account for less than half of the UK employees of the company, so not much comfort for in excess of 10,000 employees working on private sector projects.
In truth, subcontractors involved in the supply chain have little or no prospect of being paid. They will undoubtedly submit their proof of debt claim to the Liquidator in the naiive hope that they may receive some payment in the future – good luck with that! Experience shows that in situations such as this the costs of the Liquidation alone will be such that there will be no payments made to unsecured creditors. Conservative estimates suggest that 30,000 businesses will lose approximately £1bn…….not helpful at any time but highly damaging at a time when some analysts are suggesting that our economy may be teetering on the edge of another recession.
There may be some who say that subcontractors had a choice of whether to deal with Carillion or not. To an extent that’s correct but when you are a small business with employees to pay and a family to feed you have to take the work that is on offer. You can also understand why subcontractors were relatively confident of being paid by Carillion in circumstances where the Government was prepared to grant contracts to them worth billions. Surely subcontractors could be forgiven for thinking that the Government might just have carried out its own due diligence into the state of Carillion’s finances before trusting them to deliver public contracts using public money?
It seems like the management team at Carillion adopted the role of the gambler who after losing the bet tries to recover his position by placing more bets only to find his situation getting worse. In the end there was no more money to speculate. Like most businesses that fail, they simply ran out of cash.
Most people were convinced that Carillion would go into Administration rather than Liquidation. Administration allows the company to continue to trade under the stewardship of an Administrator generally with a view to selling the business. With Liquidation the company ceases to trade and the liquidator simply tries to realise assets to distribute to creditors…..in practice, the creditors are unlikely to see anything. So why Liquidation? In large part I believe it will have been driven by a huge potential employee liability for any purchaser of Carillion’s business. TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006) has the effect of preserving employee rights such as level of pay and continuity of length of service) and it applies in Administration but not in Liquidation. That liability in Administration would have put off potential suitors for the business and so it is likely that most shied away from it.
And what of the role of the Banks in this? They will have been a major influence in pushing the Company into making a final decision by putting pressure on them to re-pay their facility. I suppose that doesn’t seem unreasonable, but the question arises over the decision to lend the money in the first place.
I note that there are also a lot of people suggesting that the Government should take on the responsibility for bailing out this private company – there is a precedent for this, RBS etc. The difference with the Banks however was that their collapse could have damaged the very fabric of our society and the ramifications of that would have been felt for generations. I don’t agree that the Government should have bailed Carillion out, mine and your tax shouldn’t be used to support private companies whose shareholders have enjoyed generous dividends over many years. I haven’t seen any suggestion that those shareholders were prepared to dip into their pockets to save the Company so why should the tax payer?
It will boil down to employees and subcontractors suffering life changing losses. Former directors will no doubt come under immediate public scrutiny with various sound bites being made about investigations into this and that. In the long run however, little or nothing will happen to them, they will hide behind the advice given to them by Auditors that they were able to continue the company on a going concern basis. The directors will keep a low profile behind the walls of their expensive houses while employees and subcontractors fret over how to meet that next mortgage payment.
If your business is struggling financially, it is vital you speak with a solicitor who specialises in corporate finance at the earliest opportunity. Speak to Farleys Solicitors today on 0845 287 0939 or email us. If you are an employee of Carillion and would like some legal advice on your position, get in touch with our experienced employment team.