Carillion - railway contractor / public services provider - financial concerns, 2017/18, now in liquidation

[whole diary]

[stuving]

What I don't understand is why there is no mention of subsidiary companies. For a large group like Carillion, these special managers will be largely occupied trying to realise the value of its parts as going concerns, so as to maximise the money to go to (some) creditors. It may be that legally each is treated separately, but is that enough in practice? The special managers can, I guess, issue instructions to subordinate directors by virtue of being the sole shareholders, but at first sight there are linkages to do with loans and guarantees - at least - that matter in insolvency.

Early days yet for that to be in the media, they are more interested in the fall than the rescue.  I suspect the subsidiaries like Carillion Rail that are enabling parts to continue working and importantly paying wages to the employees.

I actually meant no mention in the Insolvency Act 1986. PWC's statement hints at this going on, but it could be read - particularly the bit about everyone being paid during the liquidations - as applying only to work on public services contracted to or via Carillion companies.

[Chris from Nailsea]

From the BBC^» (British Broadcasting Corporation - home page):

Carillion directors to be investigated

The government has ordered a fast-track investigation into directors at the failed construction firm Carillion.

The UK^▸ (United Kingdom)'s second biggest construction firm went into liquidation on Monday, after running up losses on contracts and struggling with heavy debts.

The business secretary has asked for an investigation by the Official Receiver to be broadened and fast-tracked.

The conduct of directors in charge at the time of the company's failure and previous directors will be examined.

Carillion's business is now in the hands of the official receiver, which is reviewing all of Carillion's contracts. The company employed 43,000 people worldwide, 20,000 in the UK, and had 450 contracts with the UK government.

The government has said that staff and contractors working on public sector service contracts will continue to be paid. But there is concern that big projects, including the construction of hospitals and roads, will be delayed while the details are worked out.

There are also big worries for an estimated 30,000 smaller firms which have been working on Carillion projects in the private sector.  Many are owed money and face a wait to find out if they will get any of it back.

On Monday the government said that firms working on Carillion's private contracts would be paid for another 48 hours. But the latest statement from the Insolvency Service indicates there might be more flexibility.

It says that the Liquidator is talking to Carillion's private sector clients about which services will continue; however contracts will be ended if the client no longer wants to pay for them.

"No one has been dismissed at this point and staff will continue to be paid for the work they perform," a spokesperson for the Insolvency Service said.

Chief executive Richard Howson stepped down in July last year after a profit warning. He had been in charge since the end of 2011.  Keith Cochrane was appointed as interim chief executive.

There has been much criticism over the size of Mr Howson's pay award in 2016 which, including bonuses, totalled about £1.5m. He is also due to receive a salary until October this year.

Finance director Richard Adam, who retired in December 2016 after nine years at Carillion received almost £1.1m in salary and bonuses in 2016.

As well as the conduct of directors, the role of Carillion's auditor KPMG will be examined by the Financial Reporting Council.

"It is important we quickly get the full picture of the events which caused Carillion to enter liquidation," said Business Secretary, Greg Clark, in a statement.  "Any evidence of misconduct will be taken very seriously," he said.

Shadow chancellor John McDonnell said the government had become "too close" to Carillion.  "We need full transparency on meetings and discussions that took place between government ministers, civil servants and representatives of Carillion and what warnings were given to ministers and what actions recommended implemented or not," he said.

Chief Secretary to the Treasury Liz Truss described his comments as "cheap political shots".

[Chris from Nailsea]

A further update, from the BBC^» (British Broadcasting Corporation - home page):

Carillion was left with just £29m before going bankrupt

Carillion was in talks with the government since October as part of a desperate bid to stave off collapse, according to the chief executive.

Keith Cochrane says the construction giant was left with just £29m in cash by the time it went bust on Monday.

Until the last moments, directors still believed a rescue was possible, but banks become more demanding, he said.

The details are included in a document Mr Cochrane has prepared as part of the insolvency process.

His statement details the failure of every attempt to save Britain's second biggest construction company after three profits warnings and a collapse in the share price.

Efforts to sell off parts of the business collapsed and Carillion's banks became more demanding, only agreeing fresh funding under tight new conditions that the company was unable to meet, the statement discloses.

There had been regular meetings with the government and its advisers in the final few months of 2017, Mr Cochrane says. But on 31 December a "formal request" was made for support from the government.

Even as late as last weekend, directors believed that "a constructive dialogue" was underway with banks and the government about providing short-term funding.

Directors wanted the government to "guarantee" more funding for four months while Carillion continued its restructuring, and be allowed to defer tax payments. Both requests were refused, according to Mr Cochrane.

But his document adds that "certain of the group's lenders took unilateral action which in the company's view undermined the group's efforts to conserve cash".

He singles out Royal Bank of Scotland (RBS) as one of the banks that wanted to impose tough new lending conditions.

Running out of cash, Carillion declared itself insolvent on Monday. Rather than attempt an orderly administration of Carillion in the hope of salvaging something from the business, the Official Receiver was appointed to liquidate the business.

Accountants EY and PwC both rejected requests to become administrators because there was no money left to keep the company ticking over, Mr Cochrane says.

RBS said in a statement to the BBC that it had "provided considerable support and forbearance to Carillion over many months".

"The judgement of the bank was that the restructuring plan put forward by the company was not viable and therefore we took the difficult decision not to extend further funding and increase our exposure to the business.

"We need to balance the interests of all our stakeholders when taking these decisions, and on that basis, we regrettably were not in a position to continue to put further funds into the business."

Meanwhile, Treasury minister Liz Truss told the Commons on Tuesday that "it would be completely wrong for a public company that got itself in this state to be bailed out by the state".

[JayMac]

Meanwhile, Treasury minister Liz Truss told the Commons on Tuesday that "it would be completely wrong for a public company that got itself in this state to be bailed out by the state".

Unless they are banks. I strongly suspect that if the banking crisis in the last decade had happened under a Conservative administration the banks would have been bailed out just the same.

[LiskeardRich]

What I don't understand is why there is no mention of subsidiary companies. For a large group like Carillion, these special managers will be largely occupied trying to realise the value of its parts as going concerns, so as to maximise the money to go to (some) creditors. It may be that legally each is treated separately, but is that enough in practice? The special managers can, I guess, issue instructions to subordinate directors by virtue of being the sole shareholders, but at first sight there are linkages to do with loans and guarantees - at least - that matter in insolvency.

Early days yet for that to be in the media, they are more interested in the fall than the rescue.  I suspect the subsidiaries like Carillion Rail that are enabling parts to continue working and importantly paying wages to the employees.

I actually meant no mention in the Insolvency Act 1986. PWC's statement hints at this going on, but it could be read - particularly the bit about everyone being paid during the liquidations - as applying only to work on public services contracted to or via Carillion companies.

The latest contracts the government insisted were set up as seperate companies, a look at companies house show they all have different sets of directors.
Many are joint ventures as well so the other parties will potentially be propping it up.
CarillianAmey, and Carillion Powerlines to name two are trading as normal.
PWC have instructed staff to continue working and that they’ll be paid, which contradicts the explanations given in this thread,

[grahame]

https://www.theguardian.com/business/2018/jan/16/carillion-subcontractors-laying-off-staff-collapse

The dramatic collapse of Carillion has started to hit thousands of the firm’s suppliers, as the real world impact of the demise starts to emerge.

Subcontractors owed money by the construction and services giant are already being pressurised by their banks and have begun laying off workers, as the threat of contagion afflicting the sector was likened to a near re-run of the banking crisis.

[snip]

Contractors were being paid 120 days after invoicing Carillion, but often have to pay their own workers on a weekly basis.

Yuk!

[TaplowGreen]

https://www.theguardian.com/business/2018/jan/16/carillion-subcontractors-laying-off-staff-collapse

The dramatic collapse of Carillion has started to hit thousands of the firm’s suppliers, as the real world impact of the demise starts to emerge.

Subcontractors owed money by the construction and services giant are already being pressurised by their banks and have begun laying off workers, as the threat of contagion afflicting the sector was likened to a near re-run of the banking crisis.

[snip]

Contractors were being paid 120 days after invoicing Carillion, but often have to pay their own workers on a weekly basis.

Yuk!

Believe me 120 days is far from exceptional in Construction, I know Businesses who take a perverse pride in pushing things out for as long as possible before paying (or not paying at all until m'learned friends get involved), and have driven small contractors out of business as a result.

[didcotdean]

There was a supplier to Carillion on the radio this morning who seemingly was only providing them one cleaner to a prison. He hadn't been paid since last July, but threatening to withdraw last week had yielded a payment up to November just before they went under.

[Worcester_Passenger]

I had an invoice to a big company that they were incredibly slow in settling. After 11 months, I went out and bought the invoice a birthday card, with a badge saying "Today I am 1". I was looking forward to sending that to their accounts people - but alas, they paid just before I was going to send it.

[Tim]

My bolding.  Taking a selfish local view, how does this impact electrification and associated work such as platform lengthening ...?

I fear that this work will be cut back, over budget and delivered late. 

[TaplowGreen]

My bolding.  Taking a selfish local view, how does this impact electrification and associated work such as platform lengthening ...?

I fear that this work will be cut back, over budget and delivered late. 

No change there then!!! 

[stuving]

It seems that the Official Receiver is running the liquidations as close to an administration as possible. Presumably that will cost money, though selling the best bits of the group should pay that back (assuming that's how the rules work). Certainly letting most subsidiaries cease trading would yield a lot less.

They (i.e. PWC) are saying this to suppliers (and similar things for employees and other groups):

The Companies are continuing to trade.

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 15 January 2018. 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. In the first instance, please speak to your usual contact at the Companies.  Matters requiring the specific attention of the Special Managers can be sent to:

sharedservices.carillion@uk.pwc.com

In your email please state your name, your company name, the name of your usual contact at the group and any other information you think will be useful. This will allow us to answer your query as quickly as possibly.

Your co-operation will allow the Companies to continue trading with minimal disruption.

That does seem to contradict a lot of press comment, as well as the reported behavior of site managers. I did wonder whether closing a site was directed from above, jumping to conclusions, or just a standard precaution - subcontractors and employees who fear they will be off the job and not get paid have been known to get their retaliation in first.

PWC have not yet provided any of the explanation of how the process will work that they promised, which is unfortunate. So, for a start, what are "the companies"? Formally, the holding company and five other top-level companies are covered by court orders. Does that mean those are still trading? Or is it just other subsidiaries, JVs, etc.? Or what?

[ellendune]

Assurances of being paid for goods and services from now on may not cut much ice with some suppliers who have large outstanding invoices, and if sites cannot get materials they may have to close.

[Electric train]

It seems that the Official Receiver is running the liquidations as close to an administration as possible. Presumably that will cost money, though selling the best bits of the group should pay that back (assuming that's how the rules work). Certainly letting most subsidiaries cease trading would yield a lot less.

They (i.e. PWC) are saying this to suppliers (and similar things for employees and other groups):

The Companies are continuing to trade.

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 15 January 2018. 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. In the first instance, please speak to your usual contact at the Companies.  Matters requiring the specific attention of the Special Managers can be sent to:

sharedservices.carillion@uk.pwc.com

In your email please state your name, your company name, the name of your usual contact at the group and any other information you think will be useful. This will allow us to answer your query as quickly as possibly.

Your co-operation will allow the Companies to continue trading with minimal disruption.

That does seem to contradict a lot of press comment, as well as the reported behavior of site managers. I did wonder whether closing a site was directed from above, jumping to conclusions, or just a standard precaution - subcontractors and employees who fear they will be off the job and not get paid have been known to get their retaliation in first.

PWC have not yet provided any of the explanation of how the process will work that they promised, which is unfortunate. So, for a start, what are "the companies"? Formally, the holding company and five other top-level companies are covered by court orders. Does that mean those are still trading? Or is it just other subsidiaries, JVs, etc.? Or what?

Carillion had (has) a full order book, it did not go phut due to not having any orders .........................

It went phut, I my opinion, due to bungling incompitance of the senior excutive and board.

My expirence of the staff on the ground the designers, project managers, engineers, the labours etc all generally did good work; certainly no worse than other simialr compaines I have daelt with.

And posibly the best way for the suppliers to get any money owed is for Carillion to continue to deliver its contracts; I did mention earlier in this thread can UK^▸ (United Kingdom) PLC afford to let a company of this size fail, well its failed and UK PLC still cannot afford for it to just cease

[Chris from Nailsea]

A further update, from the BBC^» (British Broadcasting Corporation - home page):

Bonuses for Carillion bosses are blocked

Bosses and directors of Carillion will not get bonuses or severance payments, the government has said.

The Insolvency Service said no such payments had been made since the construction firm collapsed on Monday.

The announcement comes as work on Carillion's public sector construction sites is paused pending decisions about their future.

However, work on most of its private sector service contracts, such as catering and cleaning, will carry on.

Carillion's customers want existing services to continue until new suppliers can be found and will provide funding to retain staff for the moment.

Several former executives of the firm would have received pay and benefits this year.

• Carillion had agreed to keep paying former chief executive Richard Howson a £660,000 salary and £28,000 in benefits until October as part of his departure deal.
• Former finance chief Zafar Khan, who left Carillion in September, was due to receive £425,000 in base salary for 12 months
• Interim chief executive Keith Cochrane was due to be paid his £750,000 salary until July, despite being due to leave next month.

On Wednesday, Business Secretary Greg Clark met representatives of some banks to seek assurances that they would support small businesses affected by the Carillion collapse.

Afterwards, he said UK^▸ (United Kingdom) lenders were ready to give "tailored support" and flexibility when it came to repayments.

About 30,000 smaller firms which have been working on Carillion projects in the private sector face an uncertain future and are waiting to learn whether they will be able to get hold of money owed to them.

HMRC said it will also help affected contractors, offering them more time to pay tax bills and providing workers with cash support through the tax credits system.

At Prime Minister's Questions on Wednesday, Labour leader Jeremy Corbyn hit out at the "wildly excessive" bonuses paid to Carillion directors.

He also accused the government of negligence, saying it awarded contracts to Carillion even when it became clear the company had problems.

Mr Corbyn also called on the government to end the "costly racket" of private sector firms running public services.

Mrs May said a third of government contracts with Carillion were agreed by the previous Labour administration, adding she wanted to provide "good quality public services, delivered at best value to the taxpayer".

Earlier GMB union boss Tim Roache had said the government's response to the Carillion crisis had been "inadequate and inept".

He said that his union had called on Mr Clark to set up a task force to help private sector companies and employees affected by Carillion's collapse.

He called on other private sector companies to take on affected workers without a change in their terms and conditions - a process that he admitted would not be a short one.