Video report by ITV Business Editor Joel Hills
The official receiver has a plan for what’s left of Carillion. Trade the existing contracts; guarantee the continuity of public services; ensure minimum disruption in the private sector.
All perfectly sensible. The smart money is on the process being far from smooth.
The immediate future of Carillion’s 450 public sector contracts appears stable in as much as the government has undertaken to underwrite the cost of keeping these projects going until it can decide what to do with them. There will be a cost to the taxpayer of doing so although the government hasn’t given any indication what it expects that to be.
But there’s no such support on offer for Carillion’s private-sector contracts. The government is giving private companies 48 hours to decide whether or not they wish to terminate the contracts or continue to meet the ongoing costs. The government won’t say how many of these contracts there are or how many are loss-making. It’s possible, of course, that it doesn’t know. The unions fear jobs losses.
As it stands, the liquidator hasn’t dismissed anyone. That is to say that all staff on the payroll as of Sunday remain on the payroll today.
This is, of course, faintly encouraging however one of the people drawing a salary from the company is its former chief executive, Richard Howson. Howson left Carillion at the end of last year, following a zinger of a profits warning, however the company agreed to pay him his £660,000 salary until October. Awkward.
The sums of money paid to directors and their past conduct will be subject to an investigation by the liquidator and - I think we can say with some under-statement - is also likely to be the subject of considerable political scrutiny. The chair of the Public Accounts Committee, Meg Hillier MP, has already indicated she wants to see a number of directors appear to answer questions.
There is already pressure on the receiver to demand the immediate clawback of all executive bonuses from 2016. It’s hard to argue that responsibility for Carillion’s spectacular bust lies anywhere other than in the boardroom.
To-date the big losers in this rather sorry episode have been Carillion’s shareholders, who have been entirely wiped out, and the banks who stand to lose millions in the form of loans which will not be repaid in full. Of course, many will argue this is exactly how it should be - they were experienced investors and should have understood the risks (although the evidence suggests they clearly didn’t).
The speed with which this company has failed is remarkable and the government has inherited a right old mess. A bailout has been avoided but there will be a cost to the taxpayers and in the days and weeks to come there are likely to be other, more innocent, victims of Carillion’s collapse who genuinely didn’t see this coming.