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Carillion liquidation on “absolutely unprecedented” scale

The men leading the liquidation process of collapsed outsourced services provider Carillion spoke exclusively at Credit Strategy’s TRI Conference about the scale and complexity of the landmark insolvency case.


Calum   Fuller

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Calum   Fuller
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Carillion collapsed in January with just £29m in reserve and owing around £5bn in debt. It had 18,000 employees on its UK payroll and 43,000 worldwide. The company covered a wide range of public services in the UK, including major infrastructure projects, school meals, prison services and services to hospitals.

 

Speaking at the TRI Conference on November 6, held at the Hilton London Bankside, official receiver David Chapman and PwC partner and special manager to Carillion LGS David Chubb outlined the scale of the job they faced and how they ensured vital services Carillion had been providing were maintained.

 

“The range of services provided meant we had to continue the company trading and that meant we had to retain the core employees of the company. Those were the key issues facing us at the outset of the liquidation,” Chapman told delegates.

 

Chubb added: “A key driver both operationally and politically was the continuation of the services, so a huge amount of work went into keeping those going. Practitioners often talk about the ‘day one experience’, when all those things hit you first off. In this case, that day one went on for a number of weeks.

 

“We then went into Q2 and that was very much transitioning all our customers to alternative service providers, which was critical in terms of maintaining continuity of service but also doing it somewhere in the Carillion platform.

 

“We achieved a few sales of contracts, but Q2 was all about getting everybody as best as possible off the network. It was quite extraordinary how often some customers felt comfortable continuing to use a platform and service from a business which was in liquidation, but by the end of the Q2 we had closed down those lines of operation for the business and all the customers were gone.

 

“At that point, we were just into the closure, and a key thing there is the myriad systems which needed to be carefully closed because record keeping is a key issue for us.”

 

As a result of the work of Chapman and Chubb, operations continued in 11 hospitals, nearly one million meals were provided to 149 schools, services were maintained in 54 prisons and 110 Home Office sites, among others.

 

Carillion’s collapse

 

A report in May from the Work and Pensions and Business, Energy & Industrial Strategy (BEIS) Committees found Carillion’s board were both “responsible and culpable for the company’s failure”.

 

As such, the report calls on The Insolvency Service to “carefully consider” whether Carillion’s former directors breached their duties under the Companies Act and if they should be recommended to the secretary of state for disqualification.

 

Also in May, MPs highlighted that Carillion used suppliers as a line of credit to “prop up its failing business model” and the report attacked the company for its attitude to paying suppliers.

 

Despite being signatories of the Prompt Payment Code, Carillion were "notorious late payers", MPs said, with standard payment terms of 120 days for its suppliers.

 

The company used an early payment facility – also known as "reverse factoring" and "supply chain financing" – which allowed suppliers to be paid earlier, with the caveat of taking a discounted payment.

 

In May, it emerged that two credit reference agencies, Moody’s and Standard & Poor’s, claimed that Carillion’s accounting for its early payment facility concealed its true level of borrowing from financial creditors.

 

They argued that the structure meant Carillion had a financial liability to the banks that should have been presented in the annual account as "borrowing". Instead Carillion presented them as liabilities to "other creditors". Moody’s claimed that as much as £498m was misclassified as a result.

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