On Monday, Carillion, the U.K.’s second-largest construction company, announced that it would go into compulsory liquidation.
A last-ditch effort to secure a deal with the U.K. government and the company’s bank lenders failed over the weekend. The collapse raises fears for the jobs and pensions of the 43,000 people employed by the company worldwide as well as questions over what will become of the 450 projects the U.K. government has employed the company to carry out.
What is Carillion?
Although Carillion is a construction company, it also provides facilities management and maintenance services such as cleaning and catering in the U.K.’s National Health Service hospitals, providing meals in 900 schools, and maintaining prisons. It holds a number of government contracts, including for the construction of a high-speed rail link and for the maintenance of roads.
Of the company’s 43,000 employees worldwide, 20,000 work in the U.K.; the company also has a significant presence in the Middle East and Canada. The company has built iconic buildings in the U.K. and abroad, including the Tate Modern in London and the Grand Mosque in Oman. It is also responsible for the revitalization of Toronto’s Union Station.
How did Carillion go bankrupt?
Payment delays from Middle East contracts and overreaching on projects that proved unprofitable led to financial woes for the company in 2017.
Carillion has been in trouble since July, when it announced it was losing money and its debts were rising. In the subsequent five months, it issued two more profit warnings. By this past weekend, the company had £900 million ($1.2 billion) in debt and a £587 million ($808 million) pension deficit. By Friday, the company’s market capitalization had dropped to £61 million, down from £2 billion in 2016.
With debts and pension obligations outweighing the company’s value, it approached the government and its lenders for a bail-out, but failed to reach a deal.
Why does it matter?
Carillion’s liquidation carries implications for U.K. public services, the company’s current and former employees, and the British taxpayer.
David Lidington, a minister for the Cabinet Office, which supports the government and the prime minister, said there were plans to bring some of the public services provided by the company in-house, while others would be given to other contractors. Where Carillion is the sole contractor, the government may be forced to nationalize some contracts temporarily.
The jobs of Carillion’s 20,000 employees in the U.K. may depend on swift action from the government. For the time being, employees have been instructed to continue working as usual, but if the government or other contractors don’t step in and take on those employees, it is unclear what will happen to their jobs. Pensions Regulator Executive Director Nicola Parish said it was too soon to tell what would happen to Carillion’s pensions, but another spokesperson said the pensions were protected under the Pension Protection Scheme.
The British government provided financial support to Carillion to help win business in the Middle East, most recently in July, shortly before the company’s first profit warning. However, Construction News reports that the $180 million in financing was for the client, preventing direct taxpayer exposure to Carillion.