Kieran McGarrigle, Head of Finance at leading law firm Arthur Cox, outlines the key steps for local firms affected by the demise of the international support services giant

Northern Ireland has seen its fair share of corporate failures in the last decade, with the ripple effects of those failures impacting on thousands of local businesses and individuals.

The recent collapse of Carillion plc will overshadow those failures, with the normal ripple effect felt by creditors and employees unfortunately looking set to become a tsunami.  Northern Ireland will be far from unaffected by the demise, with the international construction and support services business and its related companies having employees and counterparties to various contracts based in this jurisdiction.

Indeed, it was reported on Friday that Carillion’s Northern Ireland business has entered liquidation more than a week after the company’s collapse.

Carillion plc is a private sector company providing services for the public sector, but the Government will say that it cannot prop up private sector companies in financial difficulty.  Those opposing the Government are likely to point to its previous support for the private sector through the help it provided to high street banks across the UK and, locally, to the Presbyterian Mutual Society. However, while political figures and commentators debate this issue, those affected by the collapse of Carillion plc face a period of uncertainty and potential financial loss.

The downfall of Carillion plc was not a surprise – it followed a number of profit warnings issued earlier by the company – but few would have expected it to be placed into compulsory liquidation.  Indeed, when it was initially reported, I had thought that the reference to compulsory liquidation was a reporting error.

This type of insolvency process is often the last resort for a company in financial difficulty.  It is normally preceded by other, more sophisticated, options for managing the situation, such as administration, voluntary arrangements, schemes of arrangement or standstill agreements, each of which can provide an opportunity to rescue an ailing business.

These more sophisticated options normally require two things: time and certainty of funding.  A move straight to compulsory liquidation suggests that the directors of Carillion plc had neither.

Carillion plc is one entity in a vast corporate group that consists of over 300 direct subsidiaries and joint venture companies. Currently, only Carillion plc and a handful of other group companies have been placed in compulsory liquidation. For those businesses in Northern Ireland affected by the collapse of Carillion plc, the first issue to clarify should be which entity within the vast group of companies they have actually contracted with.

If the counterparty is in liquidation, the next matter to be considered is whether or not their contract has, or should be, terminated as a consequence of the compulsory liquidation of Carillion plc and what impact this may have on any re-tendering process.

If, on the other hand, the counterparty to the contract is a Carillion group entity not in liquidation, the firm should be engaging immediately with that group entity to ascertain what the future holds for that particular entity – and whether or not it faces a similar fate to Carillion plc.  Only then can a business accurately assess how it will be affected by the Carillion demise.

Given the size and complexity of its business, placing Carillion plc into compulsory liquidation was an unusual move which has had a significant impact on many local businesses and individuals. However, the true impact of its collapse will only be felt over the coming weeks and months when it becomes clearer if the business of Carillion plc can, in whole or in part, be sold – and what the future holds for the vast number of direct subsidiaries and joint venture companies.

In the meantime, the vacuum will no doubt be filled with speculation and warnings, but what is important for businesses affected is that they investigate their contractual positions with Carillion group entities, ascertain the legal status of their relevant counterparty and, of course, take specialist legal advice.

The Finance Team at Arthur Cox is well positioned to advise businesses on the impact of emerging trends in the sector and on any aspect of banking and finance law in Northern Ireland. Call +44 28 9023 0007 for further information from Kieran, or your regular Arthur Cox contact.