The Economy

[Bromley boy]

For anyone who is interested the following is a good overview of the situations in which directors may become personally liable (note these are civil actions that can brought by shareholders against directors. Wrongful trading is entirely separate to these and is a criminal offence):

https://uk.practicallaw.thomsonreut...ontextData=(sc.Default)&firstPage=true&bhcp=1

Directors' liability is a very complex area of English law. Generally, shareholders can bring an action against the directors in certain circumstances, as follows:

• Shareholders can, subject to obtaining court approval, bring a derivative claim on behalf of the company against the directors for negligence, default, breach of duty or breach of trust.
• Minority shareholders can bring an "unfair prejudice" claim seeking relief against the acts of the controlling directors of the company. Alternatively, the shareholders may, on grounds of oppression, seek the winding-up of the company on a just and equitable basis.
• Where the shareholder has a personal cause of action against the director (for example, as a result of a direct contract between the director and shareholder).
• Where, in exceptional circumstances, the director has breached the company's constitution and the action is incapable of ratification by the shareholders. In such cases, the shareholder can seek to enforce the relevant constitutional provision.

Directors may also be liable to creditors in insolvency situations.
The liability of directors cannot be limited or excluded. Any provision that purports to exempt a director from liability for negligence, default, breach of duty or breach of trust in relation to the company is void (Companies Act 2006). In practice, when a claim is brought against a director for any wrongdoing, the director can either seek indemnification from the company or from the company's directors' and officers' (D&O) liability insurance policy.

 

[Moonshot]

I see on the news this evening that Carrilion top management have walked away with hundreds of thousands of pounds each, loads and loads of ordinary working people are being laid of. This is the reality of our present economy! The Government has a lot to answer for for this mess.

Government hasnt got anything to answer for. A Private Sector business has gone bust, it happens a lot including when Labour were in power.

 

[Dave1987]

I don't think we can blame the Tories for this one.

The reality is that this will always happen for as long as you can set up a company limited by guarantee. Limited companies have their own legal identity and so the management and shareholders have no personal liability for the actions of that company. Unless and until company law brings back personal responsibility, nothing will change. These debts aren't personal debts, these responsibilities aren't personal responsibilities, and it shows.

If only the rest of us could walk away from financial failure with all our possessions.

Ow I think you can. Carrilion made multiple severe profit warnings. Nothing wrong with that. But then they continued to pay dividends to their shareholders and the top bosses take hefty bonuses, this is very very wrong! And even though the company was clearly being run pretty badly the Government kept issuing them with enormous contracts?

 

[Barn]

The directors could be liable for wrongful trading, but the point of limited liability is that it is the shareholders, not the directors, who are liable for the debts of the company (to the value of their investment).

I'd say the better way of phrasing it is that the point of limited liability is that it is the company which is liable for its own debts, not the shareholders or the directors.

Shareholders will of course lose out because their shares in the company (which are their personal assets) become worthless. The only liability a shareholder would have is to pay for any shares which have been issued to them but not yet paid up. To this extent they are debtors to the company.

 

[Moonshot]

For anyone who is interested the following is a good overview of the situations in which directors may become personally liable:

https://uk.practicallaw.thomsonreut...ontextData=(sc.Default)&firstPage=true&bhcp=1

Very well posted, some on this thread could well do with getting themselves a bit more educated

 

[Barn]

Ow I think you can. Carrilion made multiple severe profit warnings. Nothing wrong with that. But then they continued to pay dividends to their shareholders and the top bosses take hefty bonuses, this is very very wrong! And even though the company was clearly being run pretty badly the Government kept issuing them with enormous contracts?

The only bit of that which potentially represents 'fault' of Government is the last bit. And even then, this is only a problem to the extent that it causes harm to public projects. It may or may not cause significant harm - it is quite likely that those contracts will simply be purchased by other companies. The Government isn't in any way responsible for the company going bust or for its corporate governance.

 

[Moonshot]

Ow I think you can. Carrilion made multiple severe profit warnings. Nothing wrong with that. But then they continued to pay dividends to their shareholders and the top bosses take hefty bonuses, this is very very wrong! And even though the company was clearly being run pretty badly the Government kept issuing them with enormous contracts?

Contracts which of course could have help them recover at a later date. Which may well be a selling point for any potential buyer of the business.

 

[Barn]

Government hasnt got anything to answer for. A Private Sector business has gone bust, it happens a lot including when Labour were in power.

Indeed - this is actually how things are supposed to work. Shareholders and banks invested in a company, they expected dividends or interest in return for that speculation, it didn't pay off in this instance, they've lost out. Other, better run, companies will take over and, since the work clearly needs to be done, I'd expect most of the operational staff to transfer to those new companies.

The real scandal would have been if the Government had bailed out those shareholders and bankers and given them effectively a risk-free investment.

 

[Dave1987]

Government hasnt got anything to answer for. A Private Sector business has gone bust, it happens a lot including when Labour were in power.

Yes they have! Why did they keep issuing Government contracts when the company was in financial turmoil yet still paying dividends and bonuses? When Tesco was doing very badly a few years back they said they would not be paying dividends until the company finances were in better shape and the forecasts were right. Carillion was being totally mismanaged and clearly did not deserve lucrative Government contracts.

 

[Moonshot]

Indeed - this is actually how things are supposed to work. Shareholders and banks invested in a company, they expected dividends or interest in return for that speculation, it didn't pay off in this instance, they lose out. Other, better run, companies will take over and, since the work clearly needs to be done, I'd expect most of the operational staff to transfer to those new companies.

The real scandal would have been if the Government had bailed out those shareholders and bankers and given them effectively a risk-free investment.

Indeed, though I will accept the fact that government were correct to bail out the banks in the financial crisis a few years ago.

 

[Bromley boy]

I'd say the better way of phrasing it is that the point of limited liability is that it is the company which is liable for its own debts, not the shareholders or the directors.

Yes indeed the company is liable for the debts, as a seperate legal entity.

I suppose the point I was trying to make is that when we are talking about a company (limited by shares), the liability that is limited is that of the shareholders.

You wouldn't ordinarily expect directors to take on any liability for a company's debts in the first place.

 

[Dave1987]

Contracts which of course could have help them recover at a later date. Which may well be a selling point for any potential buyer of the business.

What when profit warning after profit warning was issued yet they were still paying dividends and bonuses even though they were financially crippled? They clearly were being totally mismanaged so did not deserve the Government contracts.

 

[Moonshot]

Yes they have! Why did they keep issuing Government contracts when the company was in financial turmoil yet still paying dividends and bonuses? When Tesco was doing very badly a few years back they said they would not be paying dividends until the company finances were in better shape and the forecasts were right. Carillion was being totally mismanaged and clearly did not deserve lucrative Government contracts.

Sorry your wrong. I will absolutely guarentee you that there are significant numbers of government contracts being awarded to the private sector this year and some of those contracts will be to companies who are currently struggling for business and would welcome a state contract.

 

[Dave1987]

The only bit of that which potentially represents 'fault' of Government is the last bit. And even then, this is only a problem to the extent that it causes harm to public projects. It may or may not cause significant harm - it is quite likely that those contracts will simply be purchased by other companies. The Government isn't in any way responsible for the company going bust or for its corporate governance.

Government should give contracts to model companies which demonstrate ethical practices. They have huge influence though legislation and the enormous contracts they can offer so should use that influence to promote good management.

 

[Dave1987]

Sorry your wrong. I will absolutely guarentee you that there are significant numbers of government contracts being awarded to the private sector this year and some of those contracts will be to companies who are currently struggling for business and would welcome a state contract.

There is a huge difference between being in financial trouble and needing new business/contracts, and being in financial trouble and continuing to pay out dividends and bonuses.

 

[Moonshot]

There is a huge difference between being in financial trouble and needing new business/contracts, and being in financial trouble and continuing to pay out dividends and bonuses.

Except that Cariilion ( in the form of the liquidator ) are not paying bonuses. Shareholders are perfectly entitled to recieve dividends.

 

[Dave1987]

Except that Cariilion ( in the form of the liquidator ) are not paying bonuses. Shareholders are perfectly entitled to recieve dividends.

Shareholders are perfectly entitled to receive dividends as and when the board of a company deem the finances of the company are good enough to pay a dividend. If the company is strapped for cash why on earth would you take even more money out of the business by paying a dividend? From what I have read the top bosses continually took their bonuses despite the financial turmoil of the company and some will still receive their salaries despite the company being in liquidation.

 

[Barn]

Shareholders are perfectly entitled to receive dividends as and when the board of a company deem the finances of the company are good enough to pay a dividend. If the company is strapped for cash why on earth would you take even more money out of the business by paying a dividend?

I agree with you on that, Dave, I'm just unsure why you think it is primarily a fault of Government rather than a fault of Carillion's management?

Government would have a lot to answer for if it made huge advance payments to Carillion which have fallen down a black hole, but I suspect most contracts are either paid on milestone delivery or are periodic services contracts.

 

[Moonshot]

I agree with you on that, Dave, I'm just unsure why you think it is primarily a fault of Government rather than a fault of Carillion's management?

Government would have a lot to answer for if it made huge advance payments to Carillion which have fallen down a black hole, but I suspect most contracts are either paid on milestone delivery or are periodic services contracts.

Thats correct

 

[Bromley boy]

Shareholders are perfectly entitled to receive dividends as and when the board of a company deem the finances of the company are good enough to pay a dividend. If the company is strapped for cash why on earth would you take even more money out of the business by paying a dividend? From what I have read the top bosses continually took their bonuses despite the financial turmoil of the company and some will still receive their salaries despite the company being in liquidation.

With respect all your posts on this thread are showing is how little you understand about how company law works.

There’s nothing wrong with criticising the government, but it simply isn’t justified on this occasion. Please, think before you post.

It does your credibility no favours when virtually every post you ever make is just a rant against the evil Tories.

 

[Moonshot]

Shareholders are perfectly entitled to receive dividends as and when the board of a company deem the finances of the company are good enough to pay a dividend. If the company is strapped for cash why on earth would you take even more money out of the business by paying a dividend? From what I have read the top bosses continually took their bonuses despite the financial turmoil of the company and some will still receive their salaries despite the company being in liquidation.

When was the last time Carillion paid a dividend? And what were there finances like at the time?

 

[Dave1987]

I agree with you on that, Dave, I'm just unsure why you think it is primarily a fault of Government rather than a fault of Carillion's management?

Government would have a lot to answer for if it made huge advance payments to Carillion which have fallen down a black hole, but I suspect most contracts are either paid on milestone delivery or are periodic services contracts.

The Government should never have given contracts to a company being run like that as it is almost a blessing on how the company was being run.

 

[Dave1987]

With respect all your posts on this thread are showing is how little you understand about how company law works.

There’s nothing wrong with criticising the government, but it simply isn’t justified on this occasion. Please, think before you post.

It does your credibility no favours when virtually every post you ever make is just a rant against the evil Tories.

I am very well aware how it all works thanks.

BTW I’m not anti Tory at all. In fact I find a lot of their policies very good. It’s just a shame we have a hapless PM who is beholden to the right wing extremists in her party and doesn’t seem to have a single moral bone in her body. I liked David Cameron.

 

[Moonshot]

The Government should never have given contracts to a company being run like that as it is almost a blessing on how the company was being run.

I can safely tell you Dave ( having checked this ) that Carillion have not paid a dividend since 2016, and in fact were forecasting no dividend payment ( and a reduction in turnover ) for 2017 2018 and 2019. Clealry events have overtaken them in the last few days however.

 

[Moonshot]

I am very well aware how it all works thanks.

BTW I’m not anti Tory at all. In fact I find a lot of their policies very good. It’s just a shame we have a hapless PM who is beholden to the right wing extremists in her party and doesn’t seem to have a single moral bone in her body. I liked David Cameron.

is it safe to assume you voted for Cameron at his last election ?

 

[Dave1987]

When was the last time Carillion paid a dividend? And what were there finances like at the time?

https://uk.reuters.com/article/uk-c...ns-dividends-totalled-1-billion-idUKKBN1F5266

 

[Bromley boy]

The Government should never have given contracts to a company being run like that as it is almost a blessing on how the company was being run.

But it's not for the government to make judgements on how companies are being run. Their main concern when awarding these contracts is presumably who is best place to do the job for a competitive price.

As discussed upthread the fact a company has issued a profits warning doesn't mean it's automatically going to collapse.

 

[Moonshot]

https://uk.reuters.com/article/uk-c...ns-dividends-totalled-1-billion-idUKKBN1F5266

You may want to read that a little more closer Dave . Like I said , the last dividend was 2016 and that article says that 2017 was suspended.

 

[Bromley boy]

https://uk.reuters.com/article/uk-c...ns-dividends-totalled-1-billion-idUKKBN1F5266

That article shows that, for much of its history, Carillion has operated as a profitable and successful business which has returned a lot of value to its shareholders. Up until recently they were clearly a good choice for government contracts, no doubt awarded after a long tendering process.

Of course things have clearly gone very wrong over the last year or so and it's good that a full investigation is going to take place.

Why is any of this the government's fault?

 

[furnessvale]

Government would have a lot to answer for if it made huge advance payments to Carillion which have fallen down a black hole, but I suspect most contracts are either paid on milestone delivery or are periodic services contracts.

Reading many postings in this and other forums, some people have got the idea that the government awards a £1bn contract and immediately pays the money up front, which is now lost.

This, of course, is nonsense. When I was involved in civil engineering contracts, the contractor was paid monthly, in arrears, based on a measure of work completed. If a contractor went bang, the job was retendered to another company. Yes, inconvenient, yes some delay, yes some cost in retendering, but in no way was the client exposed to major costs as some seem to believe.