Insolvency warning to small firms hit by Carillion collapse
PUBLISHED: 10:26 17 January 2018 | UPDATED: 10:26 17 January 2018
Subcontractors at risk due to the failure of construction giant Carillion need to assess their finances as soon as possible to safeguard their future.
That’s the warning from an insolvency body as the industry continues to come to terms with the liquidation of the country’s second-largest building firm.
Small businesses could be hit by a double-whammy as if the loss of contracts and payments does not make them insolvent they may struggle to get new work due to the weakening of their balance sheets and credit ratings.
Mark Upton, eastern chairman of the insolvency and restructuring trade body R3, said firms which are owed money need to assess what impact it will have on their business and clearly understand their options. He said: “Subcontractors and suppliers are usually classed as unsecured creditors, and come behind secured creditors, such as banks, and employees in the queue for payment. Firms are being told to contact the liquidator for information on their specific case, but at this stage the liquidator will be unlikely to give any firm indication of the outcome for creditors.”
Mr Upton, who is also head of business recovery and insolvency at Ensors Chartered Accountants in East Anglia, said businesses could be affected in a number of ways.
He said: “For subcontractors awaiting payment for work carried out for Carillion, there will be an immediate impact on cash flow.
“The subcontractors will, of course, still be expected to pay any outstanding labour or materials costs for the work they have incurred or purchased, and make VAT and other payments due to the Crown authorities.
“This may, in some cases, include their invoices to Carillion.
“Also in the period ahead there will be an impact on their balance sheets. Bad debts and work in progress may have to be written down, weakening the balance sheet strength.
“Even if this does not cause a risk of insolvency, in practical terms it could affect their credit rating, making it harder for them to raise finance. It may also impact on their ability to win future work as in many formal tendering processes the balance sheet is used as a part measure of stability.”