An increase in the number of small construction companies going out of business is “inevitable” in the wake of the collapse of industry giant Carillion, according to insolvency experts in East Anglia.
Carillion went into compulsory liquidation on Monday after failing to reach a refinancing deal with its banks and the Government, and it is thought that as many as 30,000 smaller subcontractors could be affected.
Mark Upton, eastern region chair of insolvency and recovery trade body R3, said that firms owed money needed to assess what impact it would have on their business and clearly understand their options.
“Subcontractors and suppliers are usually classed as unsecured creditors, and come behind secured creditors, such as banks, and employees in the queue for payment,” he said.
Mr Upton, who is head of business recovery and insolvency at Ensors Chartered Accountants in East Anglia, said there would be an immediate impact on cash flow for subcontractors awaiting payment for work carried out for Carillion, while still having to pay their own employees and suppliers. Their balance sheets would be also affected by bad debts which could in turn affect their credit rating and their ability to win future work.
“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,” he added.
Andrew McTear, a partner at insolvency practice McTear Williams and Wood, said it was “inevitable” that the risk of insolvency for smaller subcontractors would be heightened, and he warned that the crisis could have an even wider effect on the industry.
“Most of Carillion’s work was done by hundreds of subcontractors, and those companies in turn will be locking their cheque books up and not paying their own subcontractors, of whom there will be thousands,” he said. “So you could get subcontractors who do no work for Carillion but are still not getting paid.”
Lee Green, director of the insolvency and recovery team at accountancy firm Larking Gowen, added: “It is guaranteed there will be a domino effect.
“Where those dominoes will fall I don’t know, but I think it is inevitable that other businesses will go under.”
Comments: Our rules
We want our comments to be a lively and valuable part of our community - a place where readers can debate and engage with the most important local issues. The ability to comment on our stories is a privilege, not a right, however, and that privilege may be withdrawn if it is abused or misused.
Please report any comments that break our rules.
Read the rules here