In the absence of payment from Carillion, subcontractors are still obliged to pay their own suppliers in relation to those contracts as “pay when paid” clauses are only enforceable in very rare circumstances.
As the subcontractor’s obligations to pay will remain at a time when the cash inflow dries up, it is vital you consider the following steps to protect your business:
- Prepare all forecasts on the assumption that no further payments will be received from Carillion for debts due as at 15th January 2018.
- Review your terms of trading with Carillion. Is there an insolvency clause which (now triggered) has voided the contract?
- Issue any appropriate “pay less notice” to a supplier in respect of a contract and ensure this occurs within the required time constraints.
- Claim on any debt insurance and ensure the insurer is promptly notified of the bad debt.
- Consider the pros and cons of entering into a new contract with the Liquidator or its special managers (PWC). Where appropriate, consider renegotiating the terms of trading.
- Consider taking on the contract direct where you have a good relationship with the ultimate client.
- Speak to your bank before you breach your overdraft limit. Be very cautions of giving a director’s personal guarantee in support of additional borrowing.
- Prepare a revised cashflow forecast. If you are forecast to run out of cash, (even for a short period of time), take prompt advice from a Licenced Insolvency Practitioner such as Gibson Hewitt. Do not wait until suppliers or HMRC commence formal recovery actions as this may reduce your options.
- Review staffing levels but take advice from a Licenced Insolvency Practitioner such as Gibson Hewitt before making any necessary redundancies.
If pre-emptive measures are not taken, the Carillion supply chain will slowly collapse. A lack of prompt action could leave a director of a subcontractor open to a claim of trading whilst insolvent with the associated risk of assuming personal liability for company debts.
Gibson Hewitt are a firm of Insolvency Practitioners and able to help. A solution such as a Company Voluntary Arrangement, (“CVA”), is an incredibly adaptable tool to help a profitable company survive after a one-off event renders the Company unable to pay its liabilities as they fall due.
If you are worried about your business, contact Lynn Gibson on 01932 336149 for more information or to arrange an initial FREE meeting at which we can explain your options.