The Carillion Conundrum: Menzies LLP on the impact of insolvency

In light of yesterday’s announcement, Simon Underwood – Business Recovery Partner at accountancy firm Menzies LLP – weighs in on the evolving Carillion crisis with advice for those companies affected.

Carillion’s liquidation will have a significant impact on its many thousands of employees and on the company’s supply chain, which is likely to comprise a large number of UK-based sub-contractors.

It is somewhat surprising that the company has been placed into liquidation as opposed to administration. Unlike administration, the liquidation process is usually regarded as terminal. It is more difficult for liquidators to continue trading and protect the business from those clients wishing to exit certain contracts.

With a number of major infrastructure projects and large service contracts, Carillion’s liquidation could be complicated and messy. Despite news of the liquidation, it is unthinkable that Carillion’s liquidators would call a halt to operations immediately. We would expect the business to continue, potentially propped up by Government or other funding.

After a lengthy period of uncertainty, while the company was negotiating with its bankers and seeking government help, sub-contractors will be clamouring to get their contracts resolved with the liquidators in the hope of easing the burden on their cash-flow. While they have known about Carillion’s financial troubles for some time, many are tied into contracts, and have had little option but to wait and see what happens next.

Given that the company has now gone into liquidation, sub-contractors and suppliers could experience financial difficulties as a direct result of Carillion’s demise; potentially leading to knock-on insolvencies. If affected in this way, suppliers and sub-contractors should seek professional advice immediately.

It may be possible to ease the cash-flow burden by helping them to agree ‘Time to Pay’ arrangements with HMRC and possibly renegotiate terms with their own suppliers, either informally, or through a rescue process like a Voluntary Arrangement.

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