Construction giant goes into liquidation

Construction company Carillion has gone into compulsory liquidation, potentially putting over 40,000 jobs at risk.

The company got into trouble after losing money on big contracts and running up huge debts. According to Vicky Ford, MP for Chelmsford, there had been low confidence in the company for months since its failure to deliver in respect of its contracts for Chelmsford prison.

Carillion is involved in major projects such as the HS2 high-speed rail line, as well as managing schools and prisons. It employs some 43,000 people across all its worldwide operations. The conglomerate also employs thousands of smaller firms, who will be keen to know how they’ll be affected by its collapse. Some of Carillion’s contracts will be taken on by other firms, whilst others could be taken back into the public sector.

Those that are employed by Carillion will inevitably be seeking employment advice in the wake of an announcement that, in the short term, they should continue going to work. Their rights and obligations will no doubt need clarification, however, a high number of redundancies is expected.

Thousands of staff have money in Carillion pension funds, which have a reported deficit of almost £600m. Those funds will now be managed by the Pension Protection Fund (PPF), who said that liquidation “raises serious concerns for all people involved”.

Sub-contractors, suppliers, those with the benefit of guarantees and indemnities and the company’s creditors may also be feeling very nervous. What will happen to claims for payments under certificates, payment obligations under JCT contracts and will guarantees given by the company yield anything?   

The government refused to insure Carillion’s debts, so the banks pulled the plug. It is thought that guarantees have not been given to the big banks; a consequence of which is to avoid criticism for nationalising losses whilst privatising profits.

However, the company has granted debentures over its assets – does this mean that, after secured creditors take first, unsecured creditors will be left high and dry? The report made by the liquidators will sure make for interesting reading.

Now is the time to prepare to prove debt as a creditor to avoid missing the boat, if it does indeed leave. There will also be significant implications for contracts which are to be taken over by third parties to ensure that provisions across the public services sector can continue in an orderly fashion. The government has already hinted at there being contingency plans in place – the result of which means that lawyers are expecting many changes to contracts, and new contractors and subcontractors coming in to replace the outgoing service providers very soon. 

The terms of these contracts and the risk associated with them is primed for scrutiny; incoming parties will need the protection of well-drafted terms and conditions and exclusion clauses where needed. Companies must also be aware of giving pumped-up warranties and guarantees themselves when taking on projects already in progress.  

PwC is expected to be appointed by the courts to act on behalf of the official receiver and handle the liquidation of Carillion’s assets.

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The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of January 2018.