Greg Palfrey, the National Head of Restructuring and Recovering at Smith & Williamson, argues that although the collapse of Carillion caused a lot of distress in the construction sector, its effects can reach other sectors as well if businesses don’t take action to protect themselves and deal with the results of the situation.
“Carillion was too big for the effects not to be far reaching, the very nature of its business means it will impact various and diverse sector groups. The construction sector could be in trouble, we’re already hearing how comments and speculation about other major competitors are seeing share prices to tumble,” added Greg.
After its liquidation, thousands of jobs were put at risk and concerns about who would take over the contracts and how it would impact the supply chain arose. While clearly there were not enough funds to continue the business, the question was why directors allowed the company to reach this position.
The businesses affected will be the ones that have a direct link to Carillion and will now have to deal with the effects of its collapse and seek help and advice on how they can continue to operate, making sure they look into their own customer base and supply chain. In a few months, even those not contracting with Carillion can be affected by the contagion stemming from the collapse. “Rapid action now could help mitigate losses and identify problems while there is a better chance of finding a more constructive solution,” advised Greg.
He also gives a few solutions for these companies, including restructuring of the business, developing a business plan, securing addition cash flow support or investment, and entering a company voluntary arrangement (CVA).
“These options are likely to be painful but ultimately it allows a business to be successful. You only have to look at the way that Balfour Beatty reacted to their problems a couple of years ago to see how hard decisions can lay the groundwork for years to come,” said Palfrey.