Avoid the Insolvency Reflex if Your Company has been Affected by Carillion’s Liquidation

If your company has been hit hard by Carillion’s downfall, it shouldn’t be assumed that your only option is to close up.

It is clear that there will be severe consequences for several hundred contracting companies across the UK, but taking steps to minimise the effects of these could avoid insolvency measures being necessary.

Rick Smith, MD of Forbes Burton recently supported this notion:

“There are obviously going to be dangerous effects of Carillion’s liquidation for many companies, several of which will only be noticed further down the line, however, companies should avoid knee-jerk reactions.

“A few measures should be implemented now to avoid more companies going under. Sub-contractors can avoid insolvency by acting quickly, and other firms should take note of the measures that should be put in place beforehand”.

We have compiled some options that are open to those that have been affected by the collapse of the construction giant;

Credit control procedures

Ensuring that firms are on time of existing procedures will be vital at this time. Any further collection issues will worsen the effects more. So, if you need to re-assess the use of your existing teams time to negate the effects of the lost contract, make sure it’s not your collection team.

Informal agreement with creditors

This may sound obvious, but so many directors that we speak to have not considered approaching creditors themselves and attempting to come to re-arrange payments after a business-altering event has taken place. This process comes at no cost if you are able to do so off your own back. You can start by simply writing to them with a profit and loss account showing what you can afford to pay over which period of time.

Explore alternative funding

There are several funding options which should be considered in order to wedge the gap while things are still up in the air. Bad debt caused by Carillion is likely to have an effect that lasts for months, or even years for small and micro entities.

Secured lending is one option, or if more of your customers take their time to pay up, invoice financing (for example, discounting and factoring) may be more suited to your company’s business model. More complex asset finance schemes are also worth looking into, but beware of the terms that you are adhering to.

Company Voluntary Arrangement (CVA)

If formal insolvency cannot be avoided, a Company Voluntary Arrangement (CVA) could be considered. A proposal would be prepared between yourself and an Insolvency Practitioner to offer one monthly payment to all creditors. If the proposal is accepted, the company would enter a legally binding agreement to adhere to the terms, allowing a continuation of trading and the breathing space needed to recover the business.

Seek professional help

The best piece of advice we can give is to speak to someone who is familiar with insolvency for tailored advice on your company’s situation.

Around 8.5 thousand of Carillion’s UK employees were under private sector contracts; these companies now face the real risk of insolvency as a knock-on effect of Carillion’s downfall.

The national spotlight on this case has meant that some banks have indicated that they will be willing to help put emergency measures in place for those that have been affected by the liquidation. Fee waivers, payment holidays and overdraft extensions could all be on the cards to assist with short term issues.

Rick Smith added:

“Knee-jerk moves into insolvency aren’t needed in a lot of cases. Taking a period of say, a few weeks to decide how to approach the matter is much more sensible.

“This is of course going to be a worrying time, and seeking help shows strength rather than weakness. Often while things are tight, a third-party adviser can look at the big picture while you focus on the details – bringing this balance into operation has seen hundreds of our clients turn their companies around.”