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Carillion’s failure

Posted on 22nd January, 2018

It wasn’t due to Brexit and it wasn’t high street retail suffering at the hands of the on-line onslaught.

It was a massive business favoured with tax payer funded contracts. A huge business which owed huge amounts to thousands of other businesses.

Whatever the case the fall out will inevitably be high whether initially in terms of lost jobs, or unpaid suppliers and sub contractors, or later job losses and business failures.

On the face of it, money owed to the date of liquidation won’t be paid.  Whilst there may be an opportunity to work for the liquidator our advice is to proceed with caution: certainty is needed that post liquidation orders for goods and services will be paid for. Get everything confirmed in writing by the party putting the order to you. If that is Carillion then ensure the terms of that order are clear and acceptable to you and that the order is from the Official Receiver or his authorised representative (e.g. PWC).

Is your customer itself a contractor for Carillion?  Have you given collateral warranties that may be called upon by a third party e.g. Carillion’s own customer?

Over the years we have advised a number of businesses facing financial problems, often taken to the edge by bad debts. Despite what the text books may say, businesses do from time to time trade at a loss; that is a simply a fact of commercial life. The most frequent killer blow to a business is a lack of cash due to large unexpected bad debts. At least a reduction in income tends to carry obvious warning signs and hopefully leaves time to plan. Sadly, the Carillion bad debts are likely to be one big hit too much for many to bear.

When a company goes into a liquidation, there will, unfortunately be casualties. No matter how tight your credit control facility is, the chances are you will be left with outstanding debts. You can try to minimise your exposure by operating a robust debt recovery process. Always chase payment of debts, don’t be put off by the debtors excuses. Decide, going forward if the debtor is somebody you want to continue working with. Insist, the debtor pays all outstanding debts before providing any more work. Do no put your business in financial trouble by ignoring overdue debts. Recovering debts is a straight forward process, so long as you have done the ground work. Get the debtors admissions that the debt is payable, keep records of discussions you have with the debtor. Pass the debt to our debt recovery team. Our experience of recovering debts means we have a deserved reputation as a no nonsense debt recover department. Recovering debts isn’t expensive, many are paid in full after just one letter from us. If you have debts which are causing you concern, call us, we will make recovering your money our number one priority.

If the worst happens however, traditional and sound advice is to any business in financial difficulties, to seek professional help; the earlier they do so the greater the chance of surviving. That must be particularly true now whereby creditors and lenders to Carillion’s suppliers may themselves look to tighten the reins: a perfect storm as just when a business is hit by a bad debt it is faced with pressure from its own creditors.

We have previously commented on the growing risk faced by company directors of investigation and sanction should their business fail. In many cases sanction (e.g. director disqualification, wrongful trading) against those individuals reflects the decisions, actions and omissions at critical times such as these. What now in the heat of the moment appears a rational and fair way forward may be seen in future by a liquidator or the Insolvency Service as unacceptable. None of us have the benefit of hindsight but at Jacksons we can advise as to the best way to deal with a horrible business scenario and try to save what can be saved and at least make the best of a bad situation.

Whenever you are in a trading relationship, whether it is with a company the size of Carillion or a small firm, it is essential that you keep on top of your credit control. Clients who are repeatedly paying late might be heading the Carillion way. Act fast; In addition to taking steps to collect the debt as mentioned above, can you stop trading without penalty? Check the contract; If you can, consider pulling the plug before cash flow means that it’s you going the same way as Carillion.  Ask yourself: commercially, is the risk of continuing to trade with such company worth the reward? Many creditors of Carillion kept trading on a payment promise and a misguided loyalty to a company seen as too big to go bust.

Finally a few additional thoughts:

Insurance: are you, your equipment and goods covered?

Credit insurance: do you have this and if so is it time to notify?

Bonds and guarantees: do they provide any protection and if so what action is required?

What is the current state of the contract? Record the current state of affairs.

Goods and equipment on site?  Do you have retention of title and if so is it effective? Mistakenly relying on retention of title that later proves to be worthless is worse than knowing the true position from the outset.

Yes, there may be a public enquiry, an excited media and noisy political posturing in future but the real issue is the here and now.  That requires urgent attention for everyone concerned on an individual basis: identify all legal rights and issues and then make informed decisions to weather this storm.

If you have concerns with issues raised in this article, please speak to head of Dispute Resolution & Debt Recovery Toby Joel at 873765 or head of Corporate Recovery & Insolvency, Stephen Wiles at 873733.

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