The ongoing deconstruction of Carillion
Media attention has waned from the initial deluge of front-page headlines regarding the Carillion collapse. It would therefore be easy to be ignorant of the ongoing disintegration of the web of Carillion companies beneath Carillion Plc, the ultimate parent company of the Carillion group, which (according to its latest accounts) holds interests in over 350 subsidiaries or joint ventures all over the world.
The press has been busy speculating over the more reader-friendly issues of director remuneration, redundancies and pension deficits. However, away from these headline issues, there is a quiet flow of insolvencies ongoing throughout the wider Carillion group which will not get much media attention. Whilst the headline issues and the results of the investigation into the reasons for Carillion’s fall are important, such isues will have a far less direct impact upon contractors than the ongoing failure of the Carillion subsidiaries, due to the knock-on effect these failures will have upon the numerous contracts entered into by these companies with Carillion.
The majority of press reporting has quite rightly focused on Carillion Plc, or simply “Carillion” generically. Carillion Plc was listed on the London Stock Exchange prior to its collapse and was party to numerous parent company guarantees, which were the incentive for many contractors to enter into contracts with a Carillion subsidiary in the first place.
When Carillion Plc entered compulsory liquidation on 15 January 2018, the Official Receiver (“OR”) was also appointed as liquidator to five other Plc subsidiary companies: Carillion Construction Limited, Carillion Services Limited, Planned Maintenance Engineering Limited, Carillion Integrated Services Limited and Carillion Services 2006 Limited. At the same time the Court appointed Michael John Andrew Jervis, David James Kelly, David Christian Chubb, Peter Dickens, David Matthew Hammond and Russell Downs of PwC as Special Managers to support the OR in managing the affairs, business and property of the companies in accordance with the powers and duties contained in the Order appointing them.
Since 15 January, there has been a quiet swathe of further Carillion group company liquidations, being:
- 16 compulsory liquidations of English registered companies
- an appointment of provisional liquidators over a Scottish company
- an Order being made under the Companies Creditors Arrangement Act in Canada to protect 4 Canadian subsidiaries whilst they put forward a rescue plan.
The detail of these further appointments is below:
- Friday 19 January 2018 – PwC officeholders appointed as provisional liquidators by the Court of Session to manage the affairs, business and property of Carillion (AMBS) Limited, a Scottish registered company, with the powers set out in Schedule 4 to the Insolvency Act 1986.
- Thursday 25 January 2018 – the OR was appointed as liquidator of Carillion LGS Limited, Carillion Asset Management Limited and Carillion Energy Services Limited on the petition of the Companies’ directors. Simultaneously the Court also appointed PwC officeholders as Special Managers to assist the OR to manage the affairs, business and property of these companies, in accordance with the powers and duties contained in the Order appointing them.
- Thursday 25 January 2018 – Ontario Superior Court of Justice granted an order under the Companies’ Creditors Arrangement Act (the “CCAA“) in respect of Carillion Construction Inc., Carillion Canada Inc., Carillion Canada Holdings Inc., and Carillion Canada Finance Corp. This CCAA filing is to allow the companies the opportunity to restructure their financial affairs and is not a bankruptcy or liquidation filing.
- Friday 26 January 2018 – the High Court appointed the OR as liquidator of Carillion Fleet Management Limited, Everprime Limited, Postworth Limited, TPS Consult Limited and Carillion Specialist Services Limited on the petition of the Companies’ directors and simultaneously also appointed PwC officeholders as special managers to support the OR.
- Friday 26 January 2018 – the High Court appointed the OR as liquidator of Carillion Utility Services Limited on the petition of the Companies’ directors and simultaneously appointed PwC officeholders as special managers to support the OR.
- Friday 26 January 2018 – the High Court appointed the OR as liquidator of Carillion AM Government Limited on the petition of the Companies’ directors and simultaneously the Court appointed PwC officeholders as special managers to support the OR.
As is evident from the above, the situation with the wider group is very fluid and developing on an almost daily basis. As the Carillion insolvency unfolds, it will provide some interesting comparisons with regards to the different insolvency procedures in play across the globe. There has already been a significant amount of media questioning around the decision to place Carillion Plc into compulsory liquidation as opposed to administration and whether or not the options available under the Insolvency Act 1986 are sufficiently flexible to deal with a group like Carillion. These questions were also asked following the collapse of Lehman Brothers, resulting in the introduction of the special administration regime for banks. There are already a number of special administration regimes in place for certain sectors and so it is unlikely that Carillion will trigger a new regime. However, the fact that different regimes around the world offer non-insolvent procedure alternatives, such as in Canada (where a CCAA order is already in place) could provide a useful comparison of different international insolvency regimes in action, which may in turn reignite the “rescue culture” debate as to whether the UK regime is sufficiently debtor friendly.
The initial number of insolvent Carillion companies was six. That number has now ballooned to 21 and it is unlikely that the domino effect has stopped yet. This ongoing collapse of Carillion subsidiaries affects daily those contractors assessing their position under contracts with Carillion. Many contractors will have taken immediate advice on day one to be told that their contracts with a Carillion subsidiary may not have been terminable due to the Carillion entity not being in an insolvency process. However, as shown above, this is changing almost daily and therefore contractors are urged to monitor the progression of the wider group insolvency to ensure that they are exercising their rights.