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Construction business Carillion goes into liquidation

PUBLISHED: 07:42 15 January 2018 | UPDATED: 12:58 15 January 2018

The public procurement system is stacked in favour of bigger firms, East Anglian business leaders have claimed. Picture: PA

The public procurement system is stacked in favour of bigger firms, East Anglian business leaders have claimed. Picture: PA

Construction giant Carillion has gone into liquidation.

The stricken company said it had “no choice but to take steps to enter into compulsory liquidation with immediate effect” after talks failed to find another way to deal with the company’s debts.

Carillion, which employs 20,000 workers across Britain, said crunch talks over the weekend aimed at driving down debt and shoring up its balance sheet had failed to result in the “short term financial support” it needed to continue trading while a deal was reached.

The business has been struggling under £900m of debt and a £590m pension deficit, has seen its shares price plunge more than 70pc in the past six months after making a string of profit warnings and breaching its financial covenants.

Carillion is responsible for facilities management at prisons including Norwich, Wayland, Bure, Whitemoor in Cambridgeshire, Hollesley Bay and Highpoint in Suffolk and Chelmsford, and at other locations including Ipswich Crown Court. It is also part of the joint venture behind the Cambridge-Huntingdon A14 improvement works.

Chairman Philip Green said: “This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years.

MORE: Construction industry leaders say smaller firms will pay price for Carillion’s collapse

“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.

“We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers.”

The company is understood to have public sector or public/private partnership contracts worth £1.7bn, including providing school dinners, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 army base homes for the Ministry of Defence.

As a result, the Government has been under increasing pressure to intervene to prevent the collapse of the company.

Unions are calling for urgent reassurances over the jobs, pay and pensions of thousands of workers following the “disastrous” news.

Officials from several unions representing workers on the railways, construction sites, prisons, hospitals and schools are seeking information from the company and ministers.

Rail, Maritime and Transport union general secretary Mick Cash said: “This is disastrous news for the workforce and disastrous news for transport and public services in Britain.

“We have been warning since Thursday night that we thought the collapse of the company was imminent.

“The blame for this lies squarely with the Government who are obsessed with out-sourcing key works to these high risk, private enterprises.

“RMT will be demanding urgent meetings with Network Rail and the train companies today with the objective of protecting our members jobs and pensions.

“The infrastructure and support works must be immediately taken in house with the workforce protected.

“Transport secretary Chris Grayling and his Tory colleagues must be forced to take responsibility for this crisis which is wholly of their making.”

Carillion had met with lenders HSBC, Barclays, Santander and Royal Bank of Scotland on Wednesday to discuss options for reducing debts, recapitalise or restructure the group’s balance sheet.

It was followed by a meeting on Friday between the Government, pension authorities and stakeholders in an attempt to thrash out a rescue package for the firm.

A petition launched over the weekend calling for Carillion to be nationalised had attracted more than 1,200 signatures.

In November last year Carillion announced it had been awarded two contracts on Network Rail’s Midland Mainline improvement programme, including one to upgrade the existing track and infrastructure from London to Corby.

Network Rail said in a statement: “Network Rail is activating its contingency plans as a result of this unfortunate news.

“Passengers can be reassured that their services will be running as normal today as Carillion’s work for Network Rail does not involve the day-to-day running of the railway.

“We will be working closely with the administrators and Carillion’s management team to ensure projects that they are working on continue and that the supply chain is maintained for this important work.

“Our aim is to ensure, as far as possible, that this news has as little impact as possible on our projects to grow and expand the railway network.”

A statement from the chairmen of the Carillion pension schemes said: “This is obviously very disappointing news.

“The trustees have been very closely involved in all discussions with stakeholders over the last few months, working to protect members’ interests.

“We will now work with PwC and the Pension Protection Fund to deliver detailed information to members about how their benefits will be affected, and provide them with all the support that we can.

“We are in the process of issuing an initial communication to all members, and we will make further information available as soon as possible, including by establishing a dedicated web page.”

Shadow business secretary Rebecca Long-Bailey said there were “extreme concerns” about the Government’s handling of the situation and said Whitehall should take Carillion contracts back in-house.

“We expect the Government to step up now, take these contracts - the public sector contracts - back into public control, to give certainty to those workers and those in the supply chain and those who rely on the pension funds going forward,” she told BBC Radio 4’s Today.

There should be a “full and transparent investigation” into the company and how the Government awarded it contracts despite concerns about its financial health.

The Government has said all Carillion staff should still come to work and “those already receiving their pensions will continue to receive payment”, following the construction giant’s collapse.

Cabinet Office Minister David Lidington said there would be no “fire sale” of Carillion assets and the cost of the process to taxpayers would be “considerably less” than an unmanaged collapse.

Workers will continue to be paid via the official receiver, he said.

Defending the decision not to bail out the firm, he told BBC Radio 4’s Today programme: “We did decide that taxpayers can’t be expected to bail out a private sector company, particularly when their troubles arose for the most part from a side of their business which is nothing to do with UK Government contracts.”

He said Whitehall departments had drawn up contingency plans for the event of Carillion’s collapse and contracts awarded since July last year had been on a joint venture basis, where the other partners will now take up responsibility.

The managed administration would mean “there is not going to be a fire sale of assets, the Government is going to pay for the administrative costs of the official receiver so that we can protect the delivery of public services”.

Those costs “will be considerably less than the costs of an unplanned administration”.

He added: “As we go forward, some services will be taken in house, some services will go out to alternative contractors in a managed, orderly fashion.”

PwC, which is managing the liquidation process with the Insolvency Service, said it is “exploring any potential sale of the businesses and assets in whole or part”.

A spokesman for the Insolvency Service said the government would continue funding public sector contracts being undertaken by Carillion and said the service wanted to make contact with its private sector customers to determine whether the still wished to continue purchasing the group’s services.

“Carillion was doing important work for a whole range of customers so there will still be a need for the work it is doing,” he said.

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