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May 2018
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Comment and advice for businesses affected after the collapse of Carillion

Reporter: Stuart Littleford

Richard Wade, a specialist in construction law at leading law firm Blake Morgan, has spoken to GPSJ with advice for businesses following the collapse of Carillion.

Richard said: “The liquidation of Carillion and appointment of partners at PwC with day-to-day control represents one of the biggest failures of a private sector company this decade and certainly the biggest since the collapse of BHS.

“When such a large company enters liquidation the shockwaves are felt throughout the supply chain. Carillion is the second largest construction company in the UK and a truly global company, with operations in countries including Canada and the Middle East.

“Therefore, these shockwaves are likely to continue to be felt throughout the industry by the many businesses that worked with Carillion, and of course the employees who number nearly 20,000 in the UK.”

He added: “Since the liquidator will look to sell the assets of a company, I would expect that the vast numbers of the profitable contracts or projects are novated or assigned.

“With debts reported to be in the region of £1.5 billion, the liquidators will be looking to effect ‘sales’ of some of the more profitable contracts in order to maximise assets for creditors. This can happen quickly and may well lead to some worthwhile investment opportunities for other players in the sector.”

Richard assessed the implications for businesses and gave his advice on how to mitigate the impact:

  • Where a company has contracted with Carillion (directly or as part of a large supply chain), it should quickly establish that the entity it has contracted with has actually entered liquidation; Carillion is a group of companies and will have many companies within this group. Blake Morgan has access to up to date portals that can provide this information if necessary.  The detail is crucial in determining what action to take and the first step must be to check the identity of your contracting party.
  • If the relevant Carillion company has entered liquidation it will likely mean that it has stopped trading.  This will have significant implications for any party that is in contract with that company.  The respective positions of employers (clients) and suppliers (sub-contractors and the like) need to be contrasted as follows:
  • An employer should be extremely alert to the possibility (probability, even) that the company has stopped trading. The employer should review the contract terms because almost certainly the liquidation will enable you to take steps to terminate the contract (as will be the position under many standard-form contracts). This is important because you can quickly re-start the project choosing a replacement contractor, once the appropriate termination steps, usually prescribed in the contract, have been taken.
  • A supplier (goods/services) should take immediate steps to contact PwC and in the meantime, look at all forms of ‘self-help’ to mitigate further losses. That could include protecting and removing equipment from site unless you have an agreement to pay. Similarly, you should look at removing employees, unless there is a clear commitment to pay.  As things stand currently, Carillion is saying that, 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 (with a ‘re-direct’ to www.pwc.co.uk/carillion for information).  While the natural temptation, for a supplier who is out of pocket, may be to ‘down tools’ without reference to the liquidators, such action should not be taken outside the contract terms (or without taking advice).  Such action may not improve the supplier’s situation; and worse, it could leave the supplier itself open to claims.
  • If Carillion was working on your development and maintaining the security, the simplest interim measure maybe to contract directly with the security provider, while medium term provision is reviewed.

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