Carillion, a very large construction company, which existed largely on the outsourcing of large government contracts, has announced that a group of its companies have gone into liquidation. It had many suppliers and is certain to have a number of IT suppliers. In the end it ran out of money leaving no option but to go into liquidation. The early talk is the government may step in and take over the running of some of the projects Carillion was previously running for the government. This will mean a requirement for continuation of some of the existing supplies.
The Liquidator has confirmed in this case that suppliers generally will be paid and should continue to supply services to the Company as before liquidation. But what if the liquidator did not do that and as in this situation may want to continue using the Supply or service?
Broadly speaking there are 2 types of supplier: A supplier of Essential Supplies and suppliers generally. What is done is done. Following the coming into force of the Insolvency (Protection of Essential Supplies) Order 2015 a supplier of essential IT supplies, can no longer strong-arm a Liquidator to pay debt accrued prior to the liquidation, as a condition of continuing supply. However, like general creditors, it can force a Liquidator to personally guarantee payment going forward, or subject to the terms of its contract, it can terminate the supply. Other creditors are free to arm twist if they can. Creditors should take care though, because withdrawing the supply incorrectly may trigger a claim for wrongly terminating the contract. It is important to find out early what supplies a supplier may have into a company like Carillion, to see if they are considered Essential (Utilities, IT and communications) , to consider their contract of supply and act quickly to give notice to the Liquidator that he/she is personally required to guarantee future payment as soon as possible. Subject to the terms of their contract the supply may be withdrawn if the guarantee is not provided. Even though the managers appointed to assist in the Carillion liquidation have indicated that all suppliers should continue to supply and will be paid, suppliers should insist on clarity in their own particular circumstances, in particular when they will be paid. Our advice is never rely on vague assurances.
It is important to note, a liquidator may not pay until forced, leaving the supplier, out of pocket. A supplier should not sit back in the hope that being “nice” may result in payment or a new contract. The notice requiring a guarantee is considered procedural and a liquidator in this situation should be expecting these calls to come rolling in. The situation is different in an Administration. For contracts entered after 1 October 2015, a term in a contract terminating an essential supply on Administration will be invalid and particular steps will need to be taken to withdraw the supply.
Unfortunately suppliers may find that the loss of a substantial contract with a company like Carillion puts severe pressure on their own viability, in which case Company Directors may need to seek advice on their own and their Company’s position and record the steps they have taken in case they too become insolvent. For any creditor or supplier facing an insolvent customer, particularly in an Administration, the outcome can often be improved if they act quickly. We have years of experience acting for creditors, especially IT suppliers, in these situations so if you would like to find out more please don’t wait to email or call.
This article is provided for general information only. stevensdrake will only be responsible for the advice we give which is specific to you.