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As it happenedended1516034178

Carillion collapse - as it happened: Government and unions react as major NHS contractor enters liquidation

Company employs some 20,000 people in the UK and holds contracts for HS2, prisons, the NHS and the armed forces

Josie Cox
Business Editor
Monday 15 January 2018 09:23 GMT
Brandon Lewis refuses to rule out taxpayer bailout of Carillion on Andrew Marr

One of the Government's most important contractors collapsed into administration on Monday as a result of its lenders refusing to provide any more financial support, raising fears about the future of hundreds of major projects at an already challenging time for the British economy.

Following several days of tense negotiations, the board of construction giant Carillion said that it had “no choice but to take steps to enter into compulsory liquidation with immediate effect’’.

Labour said that it would question the group about how the situation was allowed to become so serious and unions also called for an inquiry into the crisis.

Here's a look back at how all the action unfolded.


"The fact such a massive government contractor like Carillion has been allowed to go into administration shows the complete failure of a system that has put our public services in the grip of shady profit making contractors,” said Rehana Azam, GMB National Secretary.

"The priority now for the Government and administrators is making sure kids in schools still get fed to day - and our members still have jobs and pensions,” she added.

"There is no place for private companies who answer to shareholders, not patients, parents and service users in our public services. What’s happening with Carillion yet again shows the perils of allowing privatisation to run rampant in our schools, our hospitals and our prisons."

Josie Cox15 January 2018 08:18

Here’s Carillion’s statement in full:

“Further to the announcement made on 12 January 2018, Carillion continued to engage with its key financial and other stakeholders, including Her Majesty's Government ('HMG'), over the course of the weekend regarding options to reduce debt and strengthen the group's balance sheet. As part of this engagement, Carillion also asked those stakeholders for limited short term financial support, to enable it to continue to trade whilst longer term engagement continued.

Despite considerable efforts, those discussions have not been successful, and the board of Carillion has therefore concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect. An application was made to the High Court for a compulsory liquidation of Carillion before opening of business today and an order has been granted to appoint the Official Receiver as the liquidator of Carillion. We anticipate that the Official Receiver will make an application to the High Court for PricewaterhouseCoopers LLP to be appointed as Special Managers, to act on behalf of the Official Receiver, and we further anticipate that an order will be granted to that effect.

Philip Green, Chairman of Carillion, said:

"This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years. Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future and the Board is very grateful for the huge efforts made by Keith Cochrane, our executive team and many others who have worked tirelessly over this period.  In recent days however we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision.  We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers."

Josie Cox15 January 2018 08:22

Josie Cox15 January 2018 08:33

‘A terrible mess’

Neil Wilson, a senior market analyst at ETX Capital, says that “this was a case of bad management and pitching for contracts at any price”. Nonetheless, he also says that the Government and banks “could, or may be should, have done more”.

“Given the government was already up to its neck in this, shareholders have every right to be disappointed.

“The [Financial Conduct Authority] is looking at the timing of profits warnings but you could also argue that the number and value of Government contracts being awarded following those warnings also misled investors by painting a false picture of health. They may also question why banks that were bailed out by taxpayers were among those who forced the company to the brink.  A terrible mess and one that will take a long time to clean up,” he says.

Josie Cox15 January 2018 08:38

David Lidington, Minister for the Cabinet Office and Chancellor for the Duchy of Lancaster, has announced that the Government will continue to deliver all public sector services following the insolvency of Carillion.

Those already receiving their pensions will continue to receive payment, he said in a statement. A dedicated web page and helpline have also been set up for workers who may be concerned or have questions about their personal situation.

Josie Cox15 January 2018 08:44

The chairs of the Carillion pension schemes have issued the following statement:

"This is obviously very disappointing news. The trustees have been very closely involved in all discussions with stakeholders over the last few months, working to protect members’ interests.

“We will now work with PwC and the Pension Protection Fund to deliver detailed information to members about how their benefits will be affected, and provide them with all the support that we can. 

“We are in the process of issuing an initial communication to all members, and we will make further information available as soon as possible, including by establishing a dedicated web page.”

Josie Cox15 January 2018 08:48

‘The wrong decision’

Rebecca O’Keeffe, head of investment at online trading platform Interactive Investor, said that the Government’s decision to “walk away from Carillion appears to be based on optics rather than logic and looks like the wrong decision was made for the wrong reasons”.

“There is no doubt that Carillion posed a huge political challenge for the Government, which did not want to be seen to bail out another group of private shareholders and banks after suffering such a backlash from their decisions during the financial crisis,” she says.

“However, the prospect of the Government temporarily funding existing Carillion public service contracts, alongside the likely increase in costs for renegotiating contracts with new suppliers, make it highly likely that they could ultimately pay far more than if they had provided the guarantees that Carillion’s creditors needed,” she adds.

Josie Cox15 January 2018 09:01

So how did it get so bad for Carillion?

The nutshell explanation is that the company has been plagued by substantial debt as a result of a slowdown in many of its markets. It's been forced to issue a string of profit warnings in the last year and is battling a gaping pension deficit. 

It recorded a more than £1.4bn loss during the first half of its financial year and the departure of its chief executive last year also contributed to an investor exodus, sending shares plummeting from around 230 pence a year ago to just over 14 pence at Friday's market close.

It’s been engaged in on-off negotiations with lenders for months but over the weekend it reached the conclusion "that it had no choice but to take steps to enter into compulsory liquidation with immediate effect".

Josie Cox15 January 2018 09:18

Our chief business commentator, James Moore, points out that Carillion's 2016 annual reports and accounts ironically carried the headline Making tomorrow a better place.

That report was published in March 2017. Under the sub-heading ‘Outlook’, Chairman Philip Green made the following projections:

“Given the size and quality of our order book and pipeline of contract opportunities, our customer-focused culture and integrated business model, we have a good platform from which to develop the business in 2017.”

Josie Cox15 January 2018 09:28

Despite its large pension deficit, the liquidation of Carillion will not threaten the pensions ‘lifeboat’, the Pension Protection Fund (PPF), according to Steve Webb, director of policy at asset management group Royal London.

 “Carillion workers will understandably be devastated by the announcement of the liquidation of their firm.   But they, and retired Carillion workers, can be assured that the pensions ‘lifeboat’, the Pensions Protection Fund (PPF), will help to protect their pensions,” he said.

“Although there is a big shortfall across the Carillion pension schemes, the PPF is financially strong and will be able to pay out pensions in line with its normal rules.  The deficit in the Carillion schemes will not sink the pensions lifeboat.”

According to the 2016 Carillion annual report, the defined benefit pension scheme had 28,561 members, of whom 12,410 were pensioners.

Josie Cox15 January 2018 09:33

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