So Carillion Plc has gone into compulsory liquidation

So Carillion Plc has gone into compulsory liquidation. It is worth taking stock of quite how serious such a step is. There are sometimes options available to a company, including going into administration, entering into a Company Voluntary Arrangement or just having some informal arrangement with creditors. However, it looks like those options were not possible.

Having negotiated with Carillion on behalf of clients in the past, I know that they often take a fairly robust line to contract negotiations and to negotiations over disputes (as most contractors do). It is possible that this kind of approach has been taken to the insolvency negotiations, contributing to its demise. However, the reasons for Carillion’s demise are far less important for those companies involved as sub-contractors than the question of what the best next steps are to take to protect your position.

To be clear, this blog post is aimed at sub-contractors who might be involved in projects with Carillion. The terms “employer” and “employment” refer to the specific contractors between a contractor and sub-contractor, with an “employer” in the background. This blog post does not apply to employees, who may be employed by Carillion under a contract of employment, and who will be facing an entirely different set of problems by Carillion’s liquidation. David Lidington MP has apparently asked that employees turn up to work and our Employment Team can offer you help should you need it.

The first thing to do is to check your contract. Most standard form construction contracts, including JCT contracts, provide (in section 8 of the D&B contract, along with SBC and IC) for the immediate termination of a contract by giving immediate notice to the employer. Carillion often uses its own form of contract, modelled on the JCT contracts, so it is worth checking your own particular contract for any specific provisions. It is worth getting a surveyor or architect to help with the paperwork that follows.

Second, consider any collateral warranties, third party rights and/or performance bonds that might be in place. If Carillion were acting as main contractor, the sub-contractor may have given rights to the employer (e.g. a public sector organisation) that can be enforced upon the insolvency of Carillion. The liabilities for those could be significant. Often these documents restrict the sub-contractor’s ability to terminate the contract or the employment, even in the event of the employer’s insolvency.

Third, consider whether any money is due to be paid by Carillion to you. If it is, you will need to complete a proof of debt form for the liquidators (who are probably, once appointed in the next 14 days, going to be PWC or EY). You might get a very small percentage of your debt back from Carillion. From Carillion’s assets, the liquidators will take their fees first, followed by secured creditors (fixed charges), preferential creditors, floating charge holders and then unsecured creditors from anything that is left.

Finally, if you are involved in a dispute with Carillion, the proceedings may be stayed. Certainly if you are making a claim against Carillion in the civil courts, that is likely to be permanently stayed. A claim against you by Carillion may be resurrected at some point by the liquidators. You will need to take specific legal advice with regard to ongoing adjudications or arbitrations.

All of this is subject to government intervention, which may happen over the coming weeks and months. If there is such intervention, it is worth keeping an eye out to see if there are any special rules that apply to any bail-out.

It is going to be a bumpy ride for anyone who is currently involved in a project involving Carillion. Please get in touch with us if we can help.