Carillion and Small Businesses in Distress

The Collapse of Carillion and the Fate of Small Businesses. Act Now if in distress

It is likely that it will be weeks or months before the full extent and impact of the liquidation of Carillion starts to become clear for customers and suppliers alike. However, we know that there will be casualties, and also that time is something that the thousands of smaller businesses, in particular, who worked for Carillion, don’t have. Many might not have the resources to ride out the storm without help. They now face uncertainty, with financial distress being likely for many, and possible administration or even liquidation for some, although it is good to hear the banks are offering support. Here, our insolvency practitioners look at why financial distress can happen so quickly under such circumstances, and why swift and positive action is needed.

Financial Stress can Arrive Very Quickly

In an earlier article (Cash, Cash, Cash) we highlighted the importance of cashflow to the health of a business. It is perfectly possible for even a strong, healthy business, with growing sales to very quickly become distressed due to poor cash flow. For those that were already in distress, or even in a Zombie state, further cash flow issues exacerbates things. This is what is likely to happen in the aftermath of Carillion. Many businesses down the supply chain were already on payment terms of 6 months or longer from Carillion. The liquidation means that many may now receive nothing for the work they carried out.

It has been reported that the secured creditors, mainly the banks, are owed c.£900m, and they will get first bite of Carillion’s remaining assets as the liquidation progresses. It has also been reported that the unsecured creditors – the small businesses amongst them – are likely to receive less than 1p for every £ they are owed.

Under these circumstances, the small businesses that are affected, can quickly slip into distress or crisis, as our co-branded ICAEW guide to restructuring and insolvency shows. The very clear implication is that these businesses now face some serious and immediate issues, which need to be addressed.

A Case Study of How Quickly a Business Can be Distressed and Enter Insolvency

One of our insolvency practitioners, Tom Gardiner, is currently the administrator for a firm of electrical contractors. The annual turnover was c.£5million and it had been a successful business over a period of time.

The business had entered a distressed state as a result of weakened profit margins. Sound familiar to Carillion? Falling margins suggest that costs are too high and prices or income is too low. Either way, it is not a sustainable position. In this case, the company was then squeezed by a main contractor, both on price (further affecting margin) and on payment terms (impacting cash flow). Very similar to what was happening to the small businesses in the Carillion chain before the collapse.

In this case, by the time we were approached, restructuring to stimulate a turnaround was not possible, and administration was the result. The key point here is that the quicker a business responds to distress, the more likely it is that an insolvency procedure can be avoided.

Act Quickly if Your Business is in Distress

This is true for any business, not just those affected by the Carillion debacle. Indeed, the difference between businesses that survive and thrive and those that fail is usually how well they manage the difficulties caused by being in financial distress.

Our insolvency practitioners and their teams of financial experts can support distressed businesses by helping them to address problems at the earliest signs of financial difficulties with solutions that work.

In the case of those affected by Carillion, one of the key issues is how to deal with the uncertainty about future revenue whilst ongoing contracts are assessed and adopted by other contractors.

A possible solution might be raising finance to fill the hole left by Carillion, and we can help with sourcing that finance, as well as the business planning needed to support an application.

Sadly, in some cases an insolvency solution may have to be considered, if restructuring and turnaround is not possible. Under these circumstances, our objective is always to manage as orderly a process as possible.

Contact Our Insolvency Practitioners for Advice, Help and Solutions

We’re here for when it isn’t business as usual. So, if you are owed money by Carillion and are concerned about the effects on your business, all available options should be considered as soon as possible.

Please contact or call one of our insolvency practitioners on 0208 088 0633 for a free no obligation initial discussion with us sooner rather than later. It may make all the difference to the future of your business. With offices in London, Essex, Salisbury and the Cotswolds, we have reach across Southern England into the Midlands.