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issues to consider if you are affected by the collapse of Carillion

18 January 2018

On Monday 15 January 2018, the High Court appointed the Official Receiver as liquidator of Carillion plc and various other group companies (Carillion Construction Limited, Carillion Services Limited, Planned Maintenance Engineering Limited, Carillion Integrated Services Limited and Carillion Services 2006 Limited) on the petition of the company’s directors. The Official Receiver’s priority at this time is to ensure the operational continuity of public services while securing the best outcome for creditors.  

The collapse of Carillion is predicted to have considerable knock on effects for the industry. Concerns have been raised relating to the ongoing delivery of services and the collapses impact on the operation of hospitals, schools, and highways both in the immediate future and longer term. In the short-term, the Government are providing funding to allow Carillion’s public sector work to continue, ensuring subcontractors on public sector projects are paid. However, government support for small firms involved in purely private sector deals was very short lived. Therefore, the collapse could have detrimental domino effect on smaller companies in the supply chain that will join the queue of creditors. When a firm goes into liquidation, creditors are paid according to a legal hierarchy with secured debts paid first, then senior creditors, followed by junior creditors, with shareholders at the bottom.

There will be a period of uncertainty for those who contract (directly or indirectly through special purpose vehicles (SPVs)) with Carillion in both the private and public sectors concerning current and future projects. For those who may be affected the following issues should be considered:

  • consider what your contractual relationship is, is it a direct one or are they part of the supply chain if the relationship is not direct then make contact with your principal contractor to work through what their proposals are and what your rights are
  • review your contract(s) in particular look at rights to suspend or terminate on the grounds of insolvency and performance failure
  • understand the impact the insolvency will have on any funding arrangements particularly where they are part of a consortium delivering private finance initiative (PFI) schemes or large infrastructure projects 
  • you will need to consider the impact of the Public Procurement Regulations 2015 in relation to the replacement of Carillion or indeed where the liquidator endeavours to transfer your contract to another provider
  • consider whether this impacts on your insurance requirements in particular if Carillion were responsible for insuring the assets under a PFI scheme (perhaps as part of their corporate policy) 
  • where Carillion have taken a transfer of staff who are in the local government pension scheme check the position of admission. If they have given a parent company guarantee rather than a bond then this may have little or no worth now
  • also check where you are with any other forms of security for performance which may have been given
  • check collateral warranties are in place from relevant consultants and subcontractors and that you have the documents in your possession 
  • audit what work has been done to date and what has been paid for both under and over payments should be clarified.

The official receiver and special managers will provide further clarity on the obligations on Carillion and contracting parties. In the meantime, where Carillion is the facility management contractor on a PFI agreement it is critical that the SPV commences the management of the contract and it is the SPV’s responsibility to ensuring the continuation of services. All companies affected should continue to trade and, unless informed otherwise, all employees, agents and subcontractors are being asked to continue to work as normal and told that they will be paid for the work they do during the liquidations (i.e. from 15 January 2018 onwards). The companies will continue to operate from their present locations and rent accruing during the liquidation will be paid as an expense from company assets. It is too early to say how long these arrangements will remain in place but PwC will be leading discussions with all relevant parties including Carillion’s customers, suppliers and landlords to determine ongoing arrangements.

PwC have been appointed as special managers, they will have all the same powers as if they had been appointed as liquidators themselves and, crucially, they have the manpower and experience to manage a liquidation of this size. All parties are being encouraged to engage with their usual contacts at Carillion unless the matter requires urgent attention in which case PwC have set up designated email accounts in order to answer questions and minimise disruption. Further information can be found at https://www.pwc.co.uk/carillion.

We can assist you if you need more analysis of your legal position in light of Carillion’s liquidation and can help you to plan your next steps in the wake of these developments.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

Mark Blois

Mark Blois

Partner and Head of Education

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