Mitchell Charlesworth comments on Carillion

Date: 17/01/2018
Author: Mitchell Charlesworth
Company: Mitchell Charlesworth

Jeremy Oddie, corporate recovery and insolvency partner at Manchester accountancy firm Mitchell Charlesworth comments on the collapse of Carillion.

The age-old adage of “Cash is King” once again holds true.

Rumours of Carillion taking longer and longer to pay its suppliers have been flying around as early as 2013. Recent press articles have implied that contracts were being pursued for turnover only, without in-depth analysis of the true margins associated with each contract. The narrow margins were then squeezed further onto sub-contractors who in turn pushed the costs down the supply line to the many-a-level of sub-sub-…-sub-contractor.

It won’t be just the main sub-contractors affected by Carillion’s collapse, but the very many levels of sub-contractors and suppliers. Some suppliers may not even know that they have ultimately supplied their goods to a Carillion project. It will only be when they are not paid that the true impact will be felt.

It is almost guaranteed that the contracts that the Carillion companies have found themselves to be bound by are going to be highly complex. It is unlikely (but not impossible) that such contracts will survive liquidation proceedings and the termination and penalty clauses are likely to make eyes water. But liquidation proceedings do provide for an exit from the contracts. It must also be noted that it is unlikely that previous warranties may not be capable of being honoured.

Once the profitable contracts have been identified, and sold, what will remain? Once the level of creditors is finally known, and the full extent of losses to suppliers identified, only then will the position become clear. It is widely anticipated that Carillion’s ripples are going to be felt far and wide and for a long time.

There is one thing that can be said with any degree of certainty – there is far more to the Carillion story than is published right now. As time unfolds the pages will fill up with the stories from the front lines, probably fully explaining what currently feels like very unusual decisions having being made.