Carillion issues just 'the tip of the iceberg', says insolvency experts
The problems at Carillion are 'just the tip of the iceberg' according to insolvency experts, who are warning the group's 30,000 subcontractors should expect "minimal to no returns" from the liquidation process.
The Wolverhampton-based construction and services giant is thought to owe around £1 billion to its thousands of 'subbies' and suppliers in the wake of its collapse
Begbies Traynor, a leading independent insolvency firm, says that the group’s issues are just the tip of the iceberg, warning that many of its 30,000 subcontractors are unlikely to see any money returned as part of the ongoing liquidation process.
Meanwhile, new research suggests that a number of Carillion’s suppliers and subcontractors are likely to have been in a difficult financial state even before the news broke last week.
According to Begbies Traynor’s Red Flag Alert research for the last three months of 2017, which monitors the financial health of UK companies, support services was the UK’s worst performing sector by volume in 2017, with 121,095 businesses showing signs of financial difficulty at the end of the year, up 43 per cent on 2016.
Over the same period, financial distress in the UK construction industry grew 31 per cent, affecting 62,294 firms, further demonstrating the challenges these industries are facing following Carillion’s liquidation.
Julie Palmer, partner at Begbies Traynor, said: “When a major contractor like Carillion falls over, the domino effect is huge. While the recent support measures offered by the banks are welcome, I fear that the issues we’ve heard about so far may only be the tip of the iceberg.
“Around 30,000 subcontractors are currently bearing the brunt of Carillion’s collapse, many of which haven’t been paid by the group for 120 days. That's a long time to wait for payment, by anyone’s standards, especially in today’s extremely uncertain macroeconomic environment.
“In any liquidation process, there's an order of priority. Secured creditors will be paid first, while unsecured creditors come way down the list. Unfortunately, most subcontractors will find themselves right at the bottom of the pile, meaning the vast majority are likely to see little or no return.
“When looking at what happened at Carillion, we have to go back more than 20 years to John Major’s Private Finance Initiative in the early 1990s, which pushed public sector work out to the private sector. As a result of this, Carillion ended up with a number of non-profitable contracts that they picked up on very fine margins that simply weren’t sustainable in the long run.
“Compounding these issues, Carillion also looks to have been badly managed, with a very flat layer of management, who accepted a number of contracts where the pricing was all wrong. It left a very serious hole in the company’s accounts which it just couldn’t recover from.”
