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Carillion goes into liquidation

  • 22/01/2018
  • Jane Bray

UK based construction giant Carillion is going into liquidation after its huge financial troubles finally overwhelmed it.

Despite discussions between Carillion, its lenders and the government, no deal could be reached to save the company after it collapsed under the weight of a gigantic £1.5bn debt.

The big concern is over the disruption this might cause, given Carillion holds so many government contracts - from building hospitals to managing schools. There is also the fact that it will impact 43,000 employees in the UK and abroad - and of course the supply chain that supported Carillion has even more employees

Carillion specialises in construction, as well as facilities management and ongoing maintenance. But it is perhaps best known for being one of the largest suppliers of services to the public sector. In 2016, it had sales of £5.2bn and until July 2017 boasted a market capitalisation of almost £1bn. Since then its share price has plummeted, leaving it worth just £61m.

Notably, it is part of a consortium that holds a contract to build part of the forthcoming HS2 high speed railway line and it is the second largest supplier of maintenance services to Network Rail. It also maintains 50,000 homes for the Ministry of Defence, manages nearly 900 schools, highways and prisons.

Many argue that Carillion over-reached itself by over promising and under delivering on work, taking on too many risky contracts that proved unprofitable. It also faced payment delays in the Middle East that hit its accounts.

Last year, they issued three profit warnings in five months and wrote down more than £1bn from the value of contracts. This made it much harder to manage their enormous £900m debt pile and £600m pension deficit.

In December, the firm convinced lenders to give them more time to repay their debts. However, the company's banks, which include Santander UK, HSBC and Barclays, were reluctant to lend them any more money.

Carillion’s failure has left thousands of small contractors around £1.2bn out of pocket. Banks have offered £225m of emergency funding to small businesses affected by Carillion’s failure after a task force led by business secretary Greg Clark demanded support last week.

In response, the Federation of Small Businesses (FSB) said such support was merely a “sticking plaster”.

Many companies run checks at the start of working with a client but fail to keep an eye on their finances throughout their working relationship with them, which can lead to payments not being made if the company in question starts to hit hard times.

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