Carillion Collapse – how one business failure caused a domino effect on other businesses

The downfall of a huge company that relied massively on outsourcing the work affects not just one business – but possibly hundreds and thousands of other businesses. This is what happened in January 2018.

Carillion, is the second biggest business catastrophe, following Monarch Airlines, which has affected thousands of employees, customers, and suppliers.

Carillion went into Liquidation and not Administration – Why?

Carillion went into liquidation (whereby a liquidator tries to realise any assets and then distribute as much as possible to creditors). Some figures state almost 30,000 businesses are owed approximately one billion pounds in outsourcing costs, and some of those businesses will have to close as they will not be able to come back from such a huge loss.

If Carillion wernt into administration (whereby the company continues to operate while a buyer is found for viable parts of the organisation), then it would have been a better situation for many businesses.

But the fact that it was liquidated and not administration, shows the scale of the problem at hand. Carillion was left with just £29m in cash when it collapsed, according to a document that discloses the degree of the construction company’s financial black hole.

What are the rights of businesses that did work for Carillion and haven’t been paid?

It is unfortunate how service providers or suppliers to the companies like Carillion who have gone into liquidation are affected.

In regard to subcontractors, The Guardian says: “They could face big problems. As many as 30,000 small businesses are thought to be owed money by Carillion. Causer of Moore Stephens said: “Carillion’s collapse could trigger a number of insolvencies across the construction sector, in an industry that already experiences the highest levels of insolvency per year in the UK. The ramifications of the failure of Carillion could be huge.”

The Insolvency Act 1986 positions who gets paid first when a company goes into liquidation.  The grading is as follows:

  • Liquidator fees and expenses
  • Secured creditors with a fixed charge
  • Preferential creditors
  • Secured creditors with a floating charge
  • Unsecured creditors
  • Connected unsecured creditors
  • Shareholders

Suppliers or Service Providers to Carillion are generally unsecured creditors; therefore, often end up with little or nothing after everyone above them gets paid. So what can a business that was a supplier to Carillion actually do to protect their rights?

Legal action against an insolvent company

Some suppliers may be wanting to sue Carillion for breach of their contract. However, it would be almost impossible to bring legal action in to play after a company has been declared insolvent.

The Insolvency Act, section 130 limits any claims or actions against an insolvent company by a statutory stay of proceedings.  The stay means that no action or proceedings can be brought, or continued with, against the company without the leave of the court.

The persistence of a liquidation stay is to safeguard that all creditors of a bankrupt company are following the same set of rules and no one is favoured above another.  It acts to stop any of the organisation’s assets being spread following litigation and avoids the liquidator having to appear in proceedings when the matter can be dealt with efficiently using the liquidation process.

Contact JMR Solicitors if you are thinking to challenge a liquidation stay

It is vital that you take advice from an experienced solicitor if you plan to challenge a liquidation stay.  The case must be a solid case, and therefore a solicitor can tell you if you have a strong enough legal case to go forward.

Cases where the court may allow litigation against an insolvent company:

  • the insolvency is lengthy in duration so far
  • court proceedings would help the court clarify an insolvency related issue
  • there are many claimants coming forward for the same company

The thing is, even if a liquidation stay is raised, the court can decide that a judgment cannot be forced against the company without a further court order.

If you are an unsecured creditor of a large establishment which recently went into liquidation, ring JMR Solicitors in Manchester on 0161 491 3933.

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