Carillion - Supply Chain Advice
If you are a director of a company that worked for one of the Carillion companies now in compulsory liquidation, you must feel like you have just awakened from an extremely bad dream. You also have, for what it’s worth, my complete sympathy. The demise if this large Contractor was sudden, unexpected by most and will undoubtedly cause considerable damage in the UK construction industry.
There are increasing calls for public enquiries into the role of Carillion’s directors, its bankers and even Government ministers in the collapse. All of this will take time and let’s be totally blunt about this, for many, if not all, any good coming out of any such enquiries will simply come too late to make any difference. It is over the next few harsh months that the impact on the cash-flow of Carillion’s supply chain will wound many and may even prove to be fatal for some.
There are some 43,000 employees affected by this news as well as countless Sub-Contractors and Suppliers. The Official Receiver has appointed PwC to assist it and issued the following advice:
“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.
You will get paid for goods and services you supply from the date of the Official Receiver’s appointment onwards. Over the coming days we will review supplier contracts and we’ll contact you concerning these soon. Goods and services, you supply during the liquidation will be paid for. A letter will be sent to suppliers shortly containing further instructions.”
If you are a Sub-Contractor or Supplier with an existing contract with Carillion, here are a few basic steps to take to protect and safeguard your position.
- Identify all contracts in place with Carillion. Review the conditions, particularly those on insolvency.
- If you are unsure of your contractual position, seek advice.
- The PwC undertaking to make payments going forward only applies to goods and services supplied from 16 January 2018.
- If your contracts provide for automatic termination on the insolvency of either party this may mean that you will need a new order from PwC if you choose to continue to supply good and/or services.
- Any new order issued by or on behalf of the Official Receiver needs to be considered carefully.
- If existing contracts are to continue, payment notices are still required and you need to monitor these.
- If you have provided any collateral warranties, remember that the beneficiaries of these warranties remain able to pursue you under the warranties.
- If you are in possession of key certificates, licences or other sensitive materials, do not rush to hand these over. These documents may provide you with a stronger negotiating position when dealing with PwC.
- It is possible that new parties will be introduced to take over elements of Carillion’s works. You are not obliged to contract with these entities but it may be in your interests to do so.
- If you have loose material on site (subject to any contractual terms) you may wish to think about removing them until a way forward is agreed with PwC.
- If you have provided a design or specification you may have retained your intellectual property rights and this may provide you with a good bargaining tool.
Although the damage caused by Carillion is not your fault, you still have a responsibility as a director to satisfy yourself that your business is not trading insolvently. You have to assume that any monies owed to you by Carillion are gone but you still have to pay your creditors. Does this give you a negative balance sheet? Can you still pay your creditors as and when they fall due? Will you get support from your bank? Do you need access to an emergency funding line? These are all questions that you need to address, and quickly.
If you need help, whatever you do, don’t leave it to the last minute to seek professional advice.