Steadying the ship post-Carillion

Following the liquidation of Carillion, which has left many suppliers and sub-contractors facing a difficult future, Graham Bushby, RSM’s head of restructuring, advises affected businesses on their options.

Graham commented:

‘Over the last few days, suppliers and sub-contractors to Carillion have been urgently seeking confirmation as to whether PWC, the Special Managers appointed, require them to continue supply for goods or services. Affected businesses need to tread carefully here as ceasing supply without agreement could unwittingly lead to a breach of contract so taking advice is strongly recommended.

‘If continued supply is required, suppliers should seek undertakings that PWC will put Carillion into funds to pay for any goods or services supplied during the period of the liquidation. Regrettably suppliers will be highly unlikely to be paid sums due to them in relation to the period before the liquidation.

‘If PWC/the Official Receiver decides it does not require continued supply, affected suppliers will need to take action to seek the return of any goods provided, if they have a valid retention of title claim. Again it may be worth seeking advice first.

‘Businesses should also submit a claim to the Official Receiver for all unpaid bills, but in all likelihood, many will simply have to assume that they won’t be paid for outstanding work. As a result, many will suffer a painful hit to their cashflow.

‘There are encouraging signs from the Government and UK Finance that the banks will seek to support SMEs that need assistance with overdraft extensions, payment holidays and fee waivers. Affected businesses are advised to contact their bank as soon as possible to discuss the options. Other funding avenues such as invoice financing could also provide a useful facility to help tide companies over in the short term.

‘Many businesses will also need to rapidly reduce their cost base. Reducing headcount is one option, but redundancy costs can sometimes exacerbate short term cashflow difficulties, so are not always the answer.

‘In the short term, businesses should consider chasing outstanding trade debtors for payment and checking their own customer base for creditworthiness, particularly in cases where it is known they may have exposure to the Carillion collapse. In the longer term, firms would do well to ensure they are not overly reliant on one large customer.

‘It’s also important to remember that out of this crisis, new contract opportunities may emerge. Clearly the priority for many will be on steadying the ship, but businesses should not lose sight of new business development opportunities.’