Carillion (CLLN), the construction group and leading public sector contractor, has plunged into liquidation after its lenders refused to provide the debt-laden group with £300 million of new funding without government intervention to resolve its financial crisis.
The Wolverhampton-based firm, which employs 43,000 staff around the world, 20,000 in the UK, has been put into the hands of the Official Receiver with PricewaterhouseCoopers appointed as special managers to wind down the business.
Chairman Philip Green said he expected the government to step in and provide the necessary funding to maintain the service contracts on UK roads, hospitals and prisons held by Carillon and to minimise the disruption to its subcontractors and suppliers.
But the decision to liquidate rather than put the business in administration implied there was no value left in Carillion, which was spun out of Tarmac in 1999 before buying builders George Wimpey, Mowlem and Alfred McAlpine.
‘This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years,’ Green said.
‘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.’
With 450 government contracts Carillion covered a huge range of activities, delivering 32,000 school meals a day to running the building of spy centre GCHQ and also being the biggest manager of military bases.
However, cost overruns on a number of contracts in the UK and Middle East saw its debts balloon to around £900 million this year while its pension scheme deficit rose to £580 million.
It issued two profits warnings in 2017 with its market value plunging from £2 billion to £61 million, prompting the Opposition to demand why the government had continued to award it contracts, including involvement in the first stage of the High-Speed (HS2) rail link from London to Birmingham.
It made its first warning on 10 July, a week before it was awarded a £1.4 billion contract on HS2 and a £158 million deal from the Defence Infrastructure Organisation.
A second profits alert on 29 September was followed just over a month later with a transport contract to electrify the London to Corby railway line.
The Financial Conduct Authority had earlier announced plans to investigate the company's stock exchange statements between December 2016 and its first profits warning when it wrote off £845 million from the value of three building projects and its Middle Eastern business.
Labour’s shadow secretary of state for business Rebecca Long-Bailey told the BBC: 'Why did the government not act when profit warnings were issued? Why did they wait until the eleventh hour to step in?’
Government sources have denied it was a mistake to award the contracts to Carillion, saying to have done otherwise would have worsened its problems. 'If we had issued an edict saying they could no longer win any government contracts, that would have made them go belly up. The only option was to carry on as normal,' one aide told the Financial Times.
According to the paper, documents filed at Companies House show that as Carillion's financial situation worsened last year, it took out a £40 million loan secured on its assets with Glas Trust Corporation, a private, London-based lender.
Long-Bailey said Labour wanted the government to take on all the Carillion contracts. 'What we don’t want to see happen is the government to take on those contracts which are making a loss, while those contracts that are profitable are simply sold onto another company. That’s not good enough,’ she said.
On the stock market, the demise of Carillion caused other construction groups to fall, while infrastructure funds that employed the firm as a facilities manager on private finance initiative contracts to maintain schools, hospitals and army barracks, rushed to find replacements.
Around 28,000 of Carillon’s UK pension schemes will be transferred to the Pension Protection Fund. This will safeguard the pensions of those who are retired but means those who are still working will receive 90% of the pension they would have expected up to a cap.
Tom McPhail of Hargreaves Lansdown said although Carillion’s pension deficit was big, the PPF had a surplus of over £6 billion and was strong enough to cope.