Carillion was wound up by the court on 15 January 2018. Their debts were estimated to be in the region of £1.5 billion, based on a winding up petition presented by itself. The official receiver in London was appointed as the liquidator, with special managers appointed to assist them in dealing with the case. It is one of the highest profile cases they have dealt with in-house since SSI Steelworks.
Rather uniquely for a company being placed into compulsory liquidation, Carillion continued trading under the auspices of the official receiver. It is normally the case that employees have their contracts of employment terminated automatically on the making of a winding up order. We will explore the effect of this later in the article. However, initially employees were retained and continued to be paid their wages in order to progress the liquidation.
Over the past 3 months, the official receiver has been transferring the public and private sector contracts held by Carillion, They have been doing so either to alternative providers, or the end clients have taken the staff of Carillion in-house, rather than continuing to contract out. As of the insolvency service update of 9 April 2018, a massive 10,125 jobs have been saved with only 1,875 redundancies. Whilst any redundancies are unfortunate, losing just over 10% of the workforce in these circumstances is fairly minimal compared to how bad the situation could have been.
Just over 5,000 employees remain retained by Carillion to continue the existing contracts. They will do so until the contract is either transferred or it is no longer possible to continue. Any remaining employees will be able to claim for at least some of their losses from the redundancy payments service.
Whether the TUPE provisions apply to Carillion employees is one of the more pertinent questions which has arisen within the liquidation of the company. As stated above, a winding up order means that contracts of employment are automatically terminated. However, employees were immediately told to continue coming to work. This raises the question whether their employment contracts were adopted by the official receiver.
Where contracts have been taken back in-house and staff taken on by the end client, it is unlikely that TUPE regulations will apply. By its very name, there must be a transfer taking place for TUPE employee rights to take effect. In these cases, it is more likely to be the case that the specific contract between the end client and Carillion is being terminated, with employees then receiving formal employment offers.
In terms of the Carillion contracts transferred to third parties, this is much more of a grey area. Regulation 8 of the TUPE legislation stipulates that the TUPE legislation no longer applies on terminal insolvency procedures where sales are made under the supervision of an insolvency practitioner, with a view to liquidating the assets of the company. While this is the case in the Carillion liquidation, it is also the case that the Carillion contracts are being sold as a going concern, under which the TUPE provisions will normally apply. Whether the official receiver is deemed to have adopted the employment contracts, or simply has the employees on a retainer, will also play a significant factor in consideration of whether TUPE applies.
The overall answer to the question of whether the TUPE process applies to Carillion employees will likely remain unanswered until there is a point of dispute. The government has adopted the position that the contracts should not be subject to the majority of TUPE regulations. This is based on both the legislation and the commercial reality that it is more difficult to save jobs where TUPE applies. At present, under the current economic climate, many employees are happy to still have a job. The issue is more likely to be prevalent if there is a dispute over pay or future redundancies made by the party taking on the contract. The matter would only be likely to be answered with finality in the supreme court, if and when a case is brought in the above circumstances.
The official receiver has a duty to carry out an investigation into the directors’ conduct, establishing the extent their actions contributed to insolvency. Many companies simply fall foul to economic circumstance with the recession, or market forces at play, as the reason that their business has failed. In some cases, however, it is the directors’ actions or inaction which is the route cause for the failure of the business. In these circumstances, the official receiver will consider whether disqualification is appropriate. The directors may also be ordered to contribute to the assets available for creditors.
Members for the board, along with the auditors of Carillion, have already been questioned by MPs in the house of commons. While this is a more political investigation, the real groundwork will be carried out by the insolvency service and their contractors. To facilitate this, a questionnaire has been released asking for any parties with information about the company to come forward. This includes employees, suppliers, subcontractors and anyone else who has had past dealings with Carillion.
Directors investigations are often facilitated by those who have day to day dealings with the business, and can be used to increase the funds available for creditors. If anyone does have information which may assist the official receiver in their investigations, we would urge them to complete the questionnaire as soon as possible. This can be done for the next 4 weeks, meaning you have until 9 May 2018 to submit your evidence in this format. This does not preclude you from sending evidence to the official receiver after this deadline. However, it will make their investigations more complex and likely increase the overall costs of the process.
Moving forward, the official receiver will continue to secure as many jobs as possible, whilst intensifying their investigations into the conduct of the directors of Carillion. As many subcontractors of Carillion were on 4 month payment terms, the real pinch may come in May as the final unpaid invoices fall due. Unfortunately, it will likely be some time before a distribution is available to unsecured creditors, if at all.
If you are a former Carillion contractor and starting to feel the pinch from its liquidation, or you have concerns about cash flow, our business rescue experts are available to assist you in getting back on track.