UK Government blasted as Carillion sinks into compulsory liquidation with 40,000 jobs threatened

Fruitless weekend negotiations to save Carillion, which has a history stretching back two centuries, resulted in the appointment of PwC as liquidators at the UK’s second largest construction company and employer of around 43,000 worldwide, including 20,000 in the UK.

While the news has weighed heavily on the FTSE, stalling a strong, two week run for the share index, PwC has refused to comment on the situation, leaving uncertainty and anger to fill the vacuum.

Controversy also surrounds the UK government’s continued decisions to award numerous public sector construction and service contracts to Carillion in recent years, in spite of rumours of the contractor’s fragile financial situation being rife.

Today’s announcement follows a troubled period for the contractor which delivered a massive profit warning in July last year and the removal of Richard Howson as its chief executive.

In November it revealed that it expects to breach its financial covenants by the end of December and that full-year profits will be “materially lower” than current expectations.

And just this month the Financial Conduct Authority (FCA) revealed it was investigating “the timeliness and content of announcements made by Carillion between 7 December 2016 and 10 July 2017”.

Fiona Cincotta, a senior market analyst at www.cityindex.co.uk said: “It has been more than surprising, possibly even negligent that the UK government continued to dish out contracts to Carillion even though their future has looked uncertain for some time.

“Over £2 billion worth of government contracts were handed to Carillion during the time that the firm gave three profit warnings. This screams negligence on the behalf of the government and is a costly mistake that the UK government can ill afford.”

Following the failure to thrash out a deal with creditors over the weekend, the UK government refused to bail-out the firm and the banks passed on any rescue for the construction giant at the 11th hour.

MP David Lidington, Minister for the Cabinet Office and Chancellor for the Duchy of Lancaster, said: “It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company.

“Since profit warnings were first issued in July, the Government has been closely monitoring the situation and has been in constructive discussion with Carillion while it sought to refinance its business. We remained hopeful that a solution could be found while putting robust contingency plans in place to prepare for every eventuality. It is of course disappointing that Carillion has become insolvent, but our primary responsibility has always been keep our essential public services running safely.

“We understand that some members of the public will be concerned by recent news reports. For clarity – All employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do.

“Since its inception in the 1990s private finance has helped to deliver around £60 billion of much-needed capital investment in infrastructure in the UK across a range of projects and we will continue to maintain partnerships with responsible firms in future.”

An application was made to the High Court for a compulsory liquidation of Carillion before opening of business today.

An order has been granted to appoint the Official Receiver as the liquidator of Carillion.

The Official Receiver will make an application to the High Court for PWC to be appointed as Special Managers, to act on behalf of the Official Receiver.

David Birne, insolvency partner at H W Fisher & Company said: “For a company Carillion’s size, it is extremely rare to opt for a liquidation rather than an administration - and a compulsory liquidation at that.

“It suggests there is little, if anything, of value within the company to be saved. Almost every big insolvency in recent years has been a move towards administration rather than liquidation.

“For Carillion’s 43,000 global staff, liquidation means the immediate risk of redundancy.

“For Carillion it will mean huge breach of contract penalties that could dwarf anything demanded of it by creditors.

“And there will undoubtedly be a knock-on effect for companies that supply Carillion that will go all the way down the supply chain to the smallest firms.”

The UK government is expected to step in with funding to ensure Carillion’s public services contracts continue.

Carillion’s current Scottish projects include the extension of platforms at Edinburgh Waverley station and the new £745 million Aberdeen bypass.

The firm is also responsible for two facilities management contracts with the Ministry of Defence (MoD) worth £158m which cover 83 military sites in Scotland and was responsible for providing the day-to-day repairs for West of Scotland Housing Association (WSHA).

A key supplier to the UK government with high-tariff contracts within the HS2 and Crossrail projects, Carillion also has contracts in the rail industry, education and NHS.

Unions have warned that the collapse of Carillion collapse must not mean “business as usual” for the UK’s largest companies and is another example of the “perils of privatisation” within the public sector.

Jim Kennedy, Unite national officer for local government, said: “These have been a grim few days for this workforce. They will head into work today not knowing if their wages, pensions and even their jobs are safe.

“The administrator must provide reassurances on these to the workforce as a matter of urgency, and also that vital public services on which many depend will continue to be provided.

“We will be seeking a meeting with the administrator today to press home that that the priorities now are not the shareholders but the workers who provide the service and the people relying on them.

“One thing is evidently clear from this: there must be no business as usual for big business. There has to be an urgent inquiry into how a company that loaded itself with debt, which undercut competitors with unsustainable bids, which hoovered up vats of public money, and that had repeatedly alerted the government to its own financial shortcomings got its hands on so much of the public sector and taxpayers’ cash.

“We are also very concerned about the impact of Carillion’s collapse on the wider supply chain. Many of these small firms are the lifeblood of their community but their exposure to Carillion’s debt puts them at serious risk.

“PWC must put workers and suppliers at the head of the queue for payment, not the banks and certainly not the Carillion boardroom whose greed and recklessness has brought this giant company to its knees and imperiled so much of our public services.”

As well as the threat to thousands of jobs and potentially public services, the compulsory liquidation is also expected to impact on pensions.

David Birne, insolvency partner at H W Fisher & Company added: “It is almost certain the Pension Protection Fund (PPF) is going to have to step in to deal with the £800 million pension deficit, which will be damaging to the pensions of Carillion’s current and former employees.

“But it will also hurt the pensions funds of those not connected to Carillion because the PPF will be forced to increase charges to cover taking over such a huge deficit.

“The fact Carillion has opted for a compulsory liquidation suggests the directors of the company may have sought to expedite the process rather than leave their workforce in limbo - and unpaid - for six weeks.

“In this way, at least some of its employees can be moved over to other contractors, particularly where they are working on government contracts, such as HS2 and Crossrail, but there could still be many thousands of workers left looking for a job only three weeks into the new year.”