Carillion in Liquidation

[CheshireCrusty]

HMRC haven't had preferential creditor status for some years and have to take distribution alongside normal unsecured creditors.

Yes - you are correct, sorry. (You will note I have adopted the epithet "Crusty")

In Carillion's case I note they said in the 31st December 2016 Accounts that bank loans and overdrafts were largely unsecured and due for renewal in November 2020, so unless they have had to increase the security in the past year it looks as if a relatively large proportion of the assets will be available to be shared amongst the unsecured creditors. However the unsecured creditors will now include the pension scheme PPF deficit along with the taxes due and the unsecured bank loans and overdrafts all ranking equally. The liquidation becomes even more complex and time consuming!

 

[Llanigraham]

Unless I'm mistaken and this case is different, HMRC haven't had preferential creditor status for some years and have to take distribution alongside normal unsecured creditors.

Correct, unfortunately. The banks get first grabs.

 

[snowball]

"the grunt sub-contractors may experience some debt-management issues" - typically the "grunt" contractors issue invoices at 30 day intervals, on 60 day terms. Thus work to the end of say September is paid at the end of November, work in October paid at the end of January and work in November at the end of December. If the main contractor goes bust in December before paying for September the "grunt" can see three months money vanish. That 25% of the annual turn-over lost. To understand the potential effect, try not drawing your wages for the next three months and then tell us how you got on " experience some debt-management issues"!

BBC Radio 4 PM has reported that some time ago (several months?) Carillion extended the payment period for subcontractors to 120 days!

 

[AndrewE]

BBC Radio 4 PM has reported that some time ago (several months?) Carillion extended the payment period for subcontractors to 120 days!

And we were told the government was going to change the law to ensure that smaller firms were going to get paid more promptly - and ensure all their own suppliers honoured it too. Is it any surprise that no-one has any faith in politicians' integrity? If that had been put in place it would have minimised the fallout on smaller firms of bankruptcies like this.

 

[fowler9]

I work for CarillionAmey which as you can probably guess from the name is a joint venture. The liquidation of Carillion is having very little impact on us and the service we provide fortunately. I am of course very sorry for the many people who are affected by this though. It is us that do the MOD infrastructure repairs not Carillion as the BBC and other media outlets have been saying all day.

 

[DavidGrain]

Sky News have just tweeted that 'the board of Carillion says the company is taking steps to enter into compulsory liquidation with immediate effect'
https://twitter.com/skynewsbreak/status/952796220971474947

Just being pedantic. A company cannot put itself into compulsory liquidation. If the company takes the steps it is a voluntary liquidation then if the directors cannot make a declaration of solvency the creditors take over the management of the liquidation making it a creditors voluntary liquidation.

 

[Rob T]

As this is a liquidation, as a supplier you will not receive any of the money you are owed (for some considerable time at least). The liquidation creditors' dividend payment will only be a proportion of the debt owing to you and probably only a small proportion at that as employees wages up to today, taxes outstanding such as VAT, PAYE and NI, and bank loans are all paid first.
You cannot make any further supplies to the company in liquidation (whether this is all Carillion companies is currently unclear).
You are correct this is a real mess and explains why all construction sites on which Carrillion is a contractor now appear to be at a standstill (for days, weeks or months?).

Thanks for clearing this up!

I suppose that it would seem obvious that suppliers to Carillion are therefore just going to have to stop supplying (unless they are one of the lucky ones where the Official Receiver guarantees payment for Government based contracts).

So, as you say, there will be many sites (and services) that will, logically, be at a standstill until new contracts/arrangements are in hand (if indeed, in some cases, that ever happens).

 

[route:oxford]

"the grunt sub-contractors may experience some debt-management issues" - typically the "grunt" contractors issue invoices at 30 day intervals, on 60 day terms. Thus work to the end of say September is paid at the end of November, work in October paid at the end of January and work in November at the end of December. If the main contractor goes bust in December before paying for September the "grunt" can see three months money vanish. That 25% of the annual turn-over lost. To understand the potential effect, try not drawing your wages for the next three months and then tell us how you got on " experience some debt-management issues"!

A rather weak summary overall.

You do realise that Carillion contractors could choose when they got paid once the invoice was sanctioned?

They operated a form of self-factoring through their banks that allowed the invoices to be paid early, less the deducton of the interest chargeable between payment date and due date.

So say the "grunt" raised an invoice for work totalling £15,000 undertaken to 31st October (not every month is 30 days long) and submitted it electronically. By 15th of November, accounts payable would have verified that the invoice was in order and sanctioned payment by your choice of 60 days - 31st December.

The "grunt" could then make a business decision. Wait until 31st December for settlement of £15,000 or on say 20th November via the Early Payment Facility accept settlement of £14,958.90.

What would you have done?

 

[Mathew S]

A rather weak summary overall.

You do realise that Carillion contractors could choose when they got paid once the invoice was sanctioned?

They operated a form of self-factoring through their banks that allowed the invoices to be paid early, less the deducton of the interest chargeable between payment date and due date.

So say the "grunt" raised an invoice for work totalling £15,000 undertaken to 31st October (not every month is 30 days long) and submitted it electronically. By 15th of November, accounts payable would have verified that the invoice was in order and sanctioned payment by your choice of 60 days - 31st December.

The "grunt" could then make a business decision. Wait until 31st December for settlement of £15,000 or on say 20th November via the Early Payment Facility accept settlement of £14,958.90.

What would you have done?

What would I have done? As a freelance I issue invoices at the end of each month, payable within either 14 or 30 days, depending on the contract. If it hasn't been paid by then, the debtor gets an email reminder giving them another 7 days. Still no payment they receive a formal letter giving them another 7 days. After that, I issue a claim through the county court. I always include statutory interest, and I always make a charge for my time and expenses past the initial due date (initially £40 plus any other charges I incur).
That's what I would have done.
Big companies payment practices are awful, but small contractors have to stand up for themselves too.

 

[Elecman]

Actually in Administration/Liquidation the Administrators/ Recievers gets paid first.

 

[route:oxford]

Actually in Administration/Liquidation the Administrators/ Recievers gets paid first.

Well, they are appointed at the behest of the creditors - they wouldn't take on the work if they weren't going to be paid.

 

[Andrewh32]

Actually in Administration/Liquidation the Administrators/ Recievers gets paid first.

Agreed that is totally correct, the full order is :-

1 Liquidator
2 Secured Creditors with a fixed charge
3 Preferential Creditors (mainly employees) & Prescribed Part Creditors
4 Secured Creditors with a Floating charge
5 Unsecured Creditors
6 Connected unsecured creditors
7 Shareholders

So Banks typically can be in Nos 2 or 4 or 5

 

[AndrewE]

The "grunt" could then make a business decision. Wait until 31st December for settlement of £15,000 or on say 20th November via the Early Payment Facility accept settlement of £14,958.90.

What would you have done?

Nice one! Wait 60 days to get what you are owed in full, or touch your cap and be grateful we are only taking some money off you to let you have what you are owed a bit sooner. This is what was supposed to have been outlawed.
(I bet the banks are pleased with the system that doubles the time that contractors have to pay interest on working capital. Now why am I not surprised that nothing was ever done?)

 

[DarloRich]

A rather weak summary overall.

You do realise that Carillion contractors could choose when they got paid once the invoice was sanctioned?

They operated a form of self-factoring through their banks that allowed the invoices to be paid early, less the deducton of the interest chargeable between payment date and due date.

So say the "grunt" raised an invoice for work totalling £15,000 undertaken to 31st October (not every month is 30 days long) and submitted it electronically. By 15th of November, accounts payable would have verified that the invoice was in order and sanctioned payment by your choice of 60 days - 31st December.

The "grunt" could then make a business decision. Wait until 31st December for settlement of £15,000 or on say 20th November via the Early Payment Facility accept settlement of £14,958.90.

What would you have done?

Assuming the contractors request for payment is correct and approved without question in a timely manner.

What would I have done? As a freelance I issue invoices at the end of each month, payable within either 14 or 30 days, depending on the contract. If it hasn't been paid by then, the debtor gets an email reminder giving them another 7 days. Still no payment they receive a formal letter giving them another 7 days. After that, I issue a claim through the county court. I always include statutory interest, and I always make a charge for my time and expenses past the initial due date (initially £40 plus any other charges I incur).
That's what I would have done.
Big companies payment practices are awful, but small contractors have to stand up for themselves too.

you wont get paid in 30 days from most big companies regardless of your attempts at terms though. The terms in use will be the company standard contractors terms, often 60/90 days. Not right but usual.

 

[AndrewE]

What would I have done? As a freelance I issue invoices at the end of each month, payable within either 14 or 30 days, depending on the contract. If it hasn't been paid by then, the debtor gets an email reminder giving them another 7 days. Still no payment they receive a formal letter giving them another 7 days. After that, I issue a claim through the county court. I always include statutory interest, and I always make a charge for my time and expenses past the initial due date (initially £40 plus any other charges I incur).
That's what I would have done.
Big companies payment practices are awful, but small contractors have to stand up for themselves too.

How many big companies have you forced to accept your 14 or 30 day terms? Did the legislation actually come in to allow you to insist on it? I hope so... Maybe you just don't work (directly) for the Carillions of the world.

 

[Mathew S]

Assuming the contractors request for payment is correct and approved without question in a timely manner.



you wont get paid in 30 days from most big companies regardless of your attempts at terms though. The terms in use will be the company standard contractors terms, often 60/90 days. Not right but usual.

It's about doing the work up front. I always make sure that strict payment terms are in my contracts, and walk away from any contract where the company seeks longer than 30 days. In fact, I only agree to longer than 14 days in exceptional circumstances and with very reputable organisations (eg. BBC).
I'm fortunate in that this practice is becoming the norm in my industry, so companies are beginning to realise that if they don't pay promptly they're going to end up in court.
The thing is though that if everyone in a given industry (subcontractors, farmers, whomever) insists in these terms and refuses contracts otherwise, big companies will soon get the message that they have no choice.
The legislation is there to support small businesses enforcing their rights, but far too few are vigorous enough in using it, in my opinion.

 

[hwl]

Assuming the contractors request for payment is correct and approved without question in a timely manner.



you wont get paid in 30 days from most big companies regardless of your attempts at terms though. The terms in use will be the company standard contractors terms, often 60/90 days. Not right but usual.

The Carillion standard was apparently on 120 days. The are going to be a large number of contractors (and their employees and subcontractors) in trouble

 

[Mathew S]

How many big companies have you forced to accept your 14 or 30 day terms? Did the legislation actually come in to allow you to insist on it? I hope so... Maybe you just don't work (directly) for the Carillions of the world.

Plenty. As I say, it's rapidly becoming the norm in my industry so it's not hard. You are correct, though, that I have never worked for Carillion. Not sure they'd have much use for a journalist/producer like me

 

[DarloRich]

It's about doing the work up front. I always make sure that strict payment terms are in my contracts, and walk away from any contract where the company seeks longer than 30 days. In fact, I only agree to longer than 14 days in exceptional circumstances and with very reputable organisations (eg. BBC).
I'm fortunate in that this practice is becoming the norm in my industry, so companies are beginning to realise that if they don't pay promptly they're going to end up in court.
The thing is though that if everyone in a given industry (subcontractors, farmers, whomever) insists in these terms and refuses contracts otherwise, big companies will soon get the message that they have no choice.
The legislation is there to support small businesses enforcing their rights, but far too few are vigorous enough in using it, in my opinion.

That's great for your situation and you are right to enforce your legal rights. More should but wont as they fear being unofficially blacklisted. However when you want to work with the really big companies they will dictate the terms and they will not be favorable to you. Trying to impose your terms will result, very quickly, in the contract going elsewhere.

That's the situation many sub contractors of Carillion will find themselves in. They will see pennies in the pound if they are lucky.

The Carillion standard was apparently on 120 days. The are going to be a large number of contractors (and their employees and subcontractors) in trouble

That is harsh but not uncommon

 

[Elecman]

Agreed that is totally correct, the full order is :-

1 Liquidator
2 Secured Creditors with a fixed charge
3 Preferential Creditors (mainly employees) & Prescribed Part Creditors
4 Secured Creditors with a Floating charge
5 Unsecured Creditors
6 Connected unsecured creditors
7 Shareholders

So Banks typically can be in Nos 2 or 4 or 5

It is morally wrong that Staffs unpaid wages aren’t between 1 and 2, but hey bankers must come first!!

 

[DavidGrain]

Actually in Administration/Liquidation the Administrators/ Recievers gets paid first.

Yes but this one is going to cost millions. Also back in the Administrators/Receivers/Liquidators offices if any of the professional fee-earners are a bit light on chargeable hours they will be sent to do some work on the administration/receivership/liquidation. So there will be a rapid changeover of staff all of whom have their own learning curve at full charge-out rate for their grade.

 

[AndrewE]

That is harsh but not uncommon

And a tragedy for the people who put their all into setting up such small companies. It stinks, and it ensures that the fallout from money-men, "entrepreneurs" and empire-builders taking big risks (and getting it wrong) causes the maximum grief all round the country and right across the economy.
I see an opportunity for a political party to put something attractive and useful into their next manifesto...

 

[Andrewh32]

It is morally wrong that Staffs unpaid wages aren’t between 1 and 2, but hey bankers must come first!!

Didn't say I agree with it was just making a point of law & process

 

[dgl]

I suppose one of the main problems here is that a company can underbid for something and the proper checks are not made to make sure their bid is viable.
When my dad worked for the local council they had to accept the lowest bid even if the numbers did not really stack up, and as such the contractors would not employ enough people and work was not one to the required standard, but what could they legally do? NOTHING!
All they were able to do is tel the contractor the work was not up to standard and the endless cycle repeats itself.

I suppose this has similarities to the rail franchising model and the like of NXEA and some of the problems now being experiences at VTEC.

 

[AndrewE]

I suppose one of the main problems here is that a company can underbid for something and the proper checks are not made to make sure their bid is viable.
When my dad worked for the local council they had to accept the lowest bid even if the numbers did not really stack up, and as such the contractors would not employ enough people and work was not one to the required standard, but what could they legally do? NOTHING!
All they were able to do is tel the contractor the work was not up to standard and the endless cycle repeats itself.

I suppose this has similarities to the rail franchising model and the like of NXEA and some of the problems now being experiences at VTEC.

Yes, because a certain woman changed the law to prevent the cautious (i.e. responsible) contractors from getting work... hence the current mayhem which has wrecked almost all of what we oldies grew up with. Ranging from "trivial" things like decent road-sweeping, gully emptying, etc through running hospitals (and probation services and prisons) right up to building nuclear power stations.
Truly, the recognition of only the price of everything but the value of nothing.

 

[LNW-GW Joint]

It is morally wrong that Staffs unpaid wages aren’t between 1 and 2, but hey bankers must come first!!

The government said early on that it would pay the Liquidator's costs.
They also said today in parliament that employees working on private sector work would be paid for 48 hours.

 

[Elecman]

When Jarvis went bust, the weekly paid staff lost 8 days money, the 4 weekly paid staff lost nearly 5 weeks money as according to the Administrators there was no money to pay them, but they managed to find several million to pay themselves at there very extortionate charging levels

 

[Elecman]

Yes but this one is going to cost millions. Also back in the Administrators/Receivers/Liquidators offices if any of the professional fee-earners are a bit light on chargeable hours they will be sent to do some work on the administration/receivership/liquidation. So there will be a rapid changeover of staff all of whom have their own learning curve at full charge-out rate for their grade.

Exactly correct it’s an open chequebook to themselves with no checks and balances on who is put onto the administration doing what

 

[fowler9]

When Jarvis went bust, the weekly paid staff lost 8 days money, the 4 weekly paid staff lost nearly 5 weeks money as according to the Administrators there was no money to pay them, but they managed to find several million to pay themselves at there very extortionate charging levels

I would presume that without the liquidators there doing their job it would be some kind of bizarre free for all. Don't get me wrong, I don't like it and I am uncomfortably close to what is going on.

 

[DarloRich]

I suppose one of the main problems here is that a company can underbid for something and the proper checks are not made to make sure their bid is viable.
When my dad worked for the local council they had to accept the lowest bid even if the numbers did not really stack up, and as such the contractors would not employ enough people and work was not one to the required standard, but what could they legally do? NOTHING!
All they were able to do is tel the contractor the work was not up to standard and the endless cycle repeats itself.

I suppose this has similarities to the rail franchising model and the like of NXEA and some of the problems now being experiences at VTEC.

but you don't have to just accept the lowest bid.