UK construction firm Carillion collapses after no state rescue

Carillion, which employs 43,000 staff worldwide including 19,500 in Britain, said that the government would nevertheless provide some funding to allow current state projects to continue, following crunch talks over the weekend.

Analysts warned it could turn out to be a costly mistake by the government, led by Conservative Prime Minister Theresa May.

Carillion chairman Philip Green called it “a very sad day for Carillion” after failing to secure its future.

“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,” he said in a company statement.

Carillion is a major UK government contractor involved in a wide range of projects from schools to the multi-billion-pound High Speed Two (HS2) railway.

But it has been struggling for some time and in July last year issued the first of several profit warnings.

Carillion on Monday said “it had no choice but to take steps to enter into compulsory liquidation with immediate effect”.

It added: “An application was made to the High Court for a compulsory liquidation of Carillion before opening of business today and an order has been granted to appoint the Official Receiver as the liquidator of Carillion.”

Despite the red flags, the government continued to award the company major public contracts, including on the flagship HS2 project, leading to criticism.

But the government said it was not its place to prop up the company.

“This is a private sector company, it’s regrettable that it’s not been able to find a suitable refinancing option with its lenders,” Cabinet Office minister David Lidington told BBC radio.

“We did decide that taxpayers can’t be expected to bail out a private sector company, particularly when their troubles arose the most part from a side of their business that’s nothing to do with UK government contracts,” he added.

The government meanwhile advised Carillion staff to still come to work to see through some projects.

“There is no doubt that Carillion posed a huge political challenge for the government, which did not want to be seen to bail out another group of private shareholders and banks after suffering such a backlash from their decisions during the financial crisis,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.

“However, the prospect of the government temporarily funding existing Carillion public service contracts, alongside the likely increase in costs for renegotiating contracts with new suppliers, makes it highly likely that they could ultimately pay far more than if they had provided the guarantees that Carillion’s creditors needed.”

City Index trading group warned in a client note that “the knock-on effect on the broader economy could be large, given that the potential number of job losses are in the thousands”.

– ‘Serious questions’ –

Union leaders blamed both the government and Carillion management for the company’s collapse.

“The blame for this lies squarely with the government who are obsessed with out-sourcing key works to these high risk, private enterprises,” said Mick Cash, general secretary of the Rail, Maritime and Transport union.

Jim Kennedy, a senior official at the Unite union, called for a public inquiry and said there were “serious questions that need to be asked and answered about Carillion’s conduct”, while he questioned also why the government handed “public money to a company that had issued repeated profits warnings”.

Andrew Adonis, who resigned as head of a government-backed infrastructure commission last month, said Sunday that the Carillion crisis raised “big questions” for transport minister Chris Grayling.

Carillion has a wide range of public sector contracts, including providing support services for almost 900 schools and around 50,000 homes for military personnel.

The company, with operations also in Canada and the Middle East, had revenues of £5.2 billion ($7.1 billion, 5.9 billion euros) last year.

In January, British watchdog the Financial Conduct Authority launched an investigation into its market updates.