Carillion crisis—restructuring and inevitable insolvency

Carillion crisis—restructuring and inevitable insolvency

Stephen Young, consultant solicitor at Keystone Law, explains why Carillion entered compulsory liquidation rather than being placed in administration, and considers the wider implications of its collapse.

Why did Carillion enter compulsory liquidation rather than administration?

For an administrator to be appointed over a company, the proposed appointee must be satisfied that if appointed, they will be able to achieve one of the three statutory purposes:

  • rescuing the company as a going concern
  • achieving a better return for creditors as a whole than if it were wound up, or
  • realising property of the company in order to be able to make a distribution to one or more secured creditors

Entering administration does not automatically shut down the company, as the process does give the appointee the ability to trade the business in order to see if all or part of it can be rescued.

By comparison, when a company enters compulsory liquidation, it immediately ceases to trade because normally there is no viable business left to save. Instead the liquidator will go in and realise any remaining assets of the company and distribute them to creditors.

Normally it takes several weeks between petitioning the court to wind up a company and an order being made, as actions must be taken within certain time limits.

Therefore, the fact that Carillion did not appoint administrators, but instead persuaded a judge to waive the statutory time limits and make a winding-up order during an out-of-hours telephone hearing on a Monday morning, demonstrates how desperate the position with Carillion must have been. The company obviously had no viable business to save, and I suspect that many of the contracts it had been awarded in recent years had margins so tight that no other business would be prepared to take them on. This meant that those advising the company immediately prior to the liquidation must have decided that none of the statutory administration purposes could be achieved.

There is also the issue of a report

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