As the news broke of Carillion going into compulsory liquidation, questions abound over how a giant involved in so many high-profile government projects can fail, leaving a legacy of debt and chaos. As a huge employer and contractor, particularly in the South West region, it will inevitably have an impact on local and regional businesses.
Here we take a look at some key questions on the liquidation process.
What is liquidation?
Compulsory liquidation or "winding up" is a court-based procedure under which the assets of a company are realised and distributed to the company's creditors. The most common reason for a winding up order is that the company is insolvent.
What’s the aim of liquidation?
Liquidation is usually the chosen route if there’s little chance of rescuing the company, while administration is a process to help the company avoid insolvency. Liquidation is, in effect, damage limitation. It’s a process used to collect, realise and distribute company assets to creditors.
It’s not currently clear why the decision was made to place Carillion into liquidation and not administration. One explanation is that there was no possibility of the company being able to continue to trade as the majority of its assets appear to be ongoing contracts which need to be serviced.
What should you do if you have a contract with Carillion?
Most contracts will have clauses dealing with an insolvency event. Check your contracts to ascertain your rights and ability to terminate. Make sure you understand your ongoing obligations to any third party and protect any further exposure arising from the liquidation.
Key issues such as retention of title over goods provided and not paid for should also be considered as a priority.
There may be opportunities to contract directly with contractors, so a proactive response could result in a positive outcome for ongoing contracts. There will be opportunities to take on contracts directly where projects and services need to continue.
What if you’re owed money by Carillion?
Suppliers/sub-contractors are being asked to contact PwC as soon as possible. You can make contact directly or through your lawyers in order to protect your position. The priority in which your claim will be dealt with will depend on whether you’re a secured or unsecured creditor.
There is a formal process for lodging proof of debts in a liquidation and the appointed liquidator will inform creditors of the process and key deadlines.
Our dispute resolution experts can advise creditors on all insolvency procedures. If you need any help, get in touch with Hugh Hitchcock or Aisha Wardell on 029 2067 4451.
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