Morton Fraser Business Tip- Sub Contracts

There is little doubt that one of the biggest business news stories of the last 10 days has been the collapse of Carillion into liquidation.  Aside from the banks who were bailed out by the Government after the collapse of the global economy in 2007, there are few businesses which are deemed to be “too big to fail”. Yet Carillion is getting close to earning that title.

Already the clearing banks have set up a fund to provide money to support small business customers part of the Carillion supply chain and who are struggling after its failure.  The banks have pledged £225M in support; a mere drop in the ocean compared to circa £1.5 billion owed at the time of its liquidation.  In addition, the Government has formed a task force and plans are being put in place to deal with the vast number of public sector contracts for which Carillion was the main provider.

There will be repercussions for Carillion employees who have lost their jobs and those businesses who are sub-contractors to Carillion.  If your business is in such a position – whether with Carillion or at some point in the future with a similar business – then you need to know where to turn in dire circumstances.

Termination of a sub-contract as a result of liquidation or administration of the principal contractor has ripple effects on sub-contractors and those experiencing this should take advice from someone who is qualified in insolvency.  You will need to check your cash flow forecasts to ensure that you can meet your debts as they fall due in the event that expected contractual payments will no longer be made.  If you cannot then you will be technically insolvent and in order to avoid potential personal liability for wrongful trading the directors of an insolvent company need to follow a checklist of steps, designed to ensure that losses to creditors are minimised.


Iain Young, Restructuring and Insolvency team at Morton Fraser LLP.

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