Daily Management Review

The Collapse Of Carillion Leaves The U.K. Government With No Choice But To Intervene


01/15/2018


After a life span of two hundred years, Carillion dissolved through forced liquidation giving way under “ballooning debt pile” as the U.K. government came to the rescue to “ensure” a continued “public services”.



On Monday, 15 January 2018, Britain based “construction and services company”, Carillion came collapsing down following its banks’ loss of faith in it. As a result, several major projects, amounting in hundreds”, were cast into doubtful waters, whereby leaving the government with no choice but to “step in” as a guarantor of “vital public services”.
 
The company, however, had to go through a forced liquidation as a compulsion given the delay in its “costly contracts” added with a “slump in new business”. At this situation, the company was left at the “mercy of its lenders” while it battled to keep up with a “ballooning debt pile”.
 
Carillion was two hundred years old and its recent end comes as a “major headache” to the government for the company had undertaken around “450 projects” from the government which included “the building and maintenance of hospitals prisons, defence sites and the country’s new superfast rail line”, reports Reuters.
 
In the words of Chairman Philip Green:
“In recent days we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision”.
“This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years.”
 
The company has total employee strength of “43,000 people” across the globe, while Britain employment list alone accounted for “20,000”. Carillion’s survival battle was made public in July 2017, as it revealed its cash loss on “several projects” while it had “written down the value of its contract book by 845 million pounds”.
 
As the banks did not accept the company’s “latest” restricting attempts, the government “senior minister” came to rescue under the unions as well as the Labour Party’s pressure that kept a watch on the government on using “taxpayer money” to save the “failing company”.
 
According to Reuters:
“Carillion has debt and liabilities of 1.5 billion pounds with creditors that include banks RBS, Santander UK, HSBC and others. It has a pension deficit, included within that figure, of 580 million pounds”.
 
The Minister in Charge of the cabinet office overseeing the government operations, David Lidington, informed about his priority being a continued “public services”, whereby he admonished the Carillion staff to carry out their work as the government will take care of “their salaries”.
 
Moreover, he also added that some of the contracts that were given to Carillion would be awarded to “alternative providers”. The collapse of Carillion has taken place “at a difficult time” as the government is deep into Brexit negotiation. While, Lidington’s statement, as per Reuters, said:
“It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company”.
“For clarity, all employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do.”
 
On the other hand, Rebecca Long-Bailey, labour’s business spokesperson, has called for “a full investigation” to find out the reason behind the government awarding contracts to Carillion knowing that the company “was in trouble”. She was quoting saying to BBC:
“This company issued three profit warnings in the last six months yet despite those profit warnings the government continued to award government contracts to this company”.
“We’re ... asking for a full investigation into the government conduct of this matter.”
 
References:
reuters.com







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