Subcontractors and other small firms which might be at risk due to the failure of construction group Carillion are being urged to seek professional advice at an early stage.
Mark Upton, Eastern chair of insolvency and restructuring trade body R3, says firms which are owed money need to assess what impact it will have on their business and 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.”
Mark Upton, who is also head of business recovery and insolvency at Ensors Chartered Accountants, says businesses could be affected in a number of ways. He explained: “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.
“Those businesses which might be at risk should take professional advice as soon as possible in order to understand what their best options may be.”
