Collapse of Carillion hits small businesses hard

Thousands of small businesses, as well as banks and engineering firms, stand to lose around £4 billion following the compulsory liquidation of building giant Carillion.

After one of the UK's biggest corporate collapses, many of the firms may now be dependent on government assistance for survival.

Carillion capitulated among debts and liabilities of an estimated £1.5 billion and close to 50,000 workers globally, as well as 28,000 pension-scheme members may no longer have a secure future.

Around 5,000 suppliers are also facing up to losses as a result of the collapse and could experience severe cash flow difficulties following issues throughout the supply chain.

A number of major banks are also nursing losses, thought to be in the region of £2 billion, as Carillion's lenders included Santander UK, HSBC, Barclays and Lloyds.

The official debt figure for the firm at last check was an estimated £900 million, but thanks to a number of arrangements with subsidiaries, the figure could be far higher.

Official receiver PwC has also warned that there is no prospect of returns for shareholders.

Other construction firms have also taken a hit, as shares in the sector plummeted following the liquidation announcement - it is estimated that the top ten shareholders would have lost around £580 million since July.

On top of that, major builders will likely need to cover the costs to complete outstanding projects, with Balfour Beatty and Galliford Try among those affected.

However, it is 30,000 small businesses that stand to really lose out, with the head of Britain's Specialist Engineering Contractor's Group, Rudi Klein, suggesting they are owed an estimated £1.2 billion in unpaid invoices.

Insolvency could be a very real risk for many of them, especially those that lack alternative finance options to cover the outlays already made.

James Tetley, deputy head of research at N + 1 Singer, described the events as a 'grim day for the UK construction sector.

In total six companies were placed in liquidation, including Carillion Plc, Carillion Services, Carillion Construction, Carillion Services 2006, Carillion Integrated Services and Planned Maintenance Engineering.

By Phil Smith


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