Carillion falls into compulsory liquidation after talks collapse

Last ditch efforts to save Carillion broke down over the weekend, prompting the outsourcing company to file for compulsory liquidation.

Philip Green, chairman of Carillion (left), said: "This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years."

Crisis talks

Crisis talks between Carillion and its lenders broke down in the early hours of Monday and PwC is expected to be appointed by the courts as "special managers" to handle the liquidation as creditors seek to recoup some of their investments.

Thousands of jobs are expected to be lost over the coming weeks - Carillion employs 20,000 in the UK alone, more than 40,000 globally.

The government will be funding the continuation of many public services carried out by company, however, including hospital and school meals and essential engineering projects - until replacement contractors can be found.

Supply chain

News of the collapse sent waves of concern around the company's supply chain as fears that subcontractors which provide Carillion with services and materials could all come under pressure.

Rudi Klein, chief executive of the Specialist Engineering Contractors Group (right), told BBC’s Breakfast: “We’re going to have to look into exposure of companies this week, but there will undoubtedly be a number of suppliers who will face extreme distress.”

But in the immediate aftermath of the collapsed talks, questions were being asked about how such an important link in the government contract supply chain was able to get into such deep financial straits without prompting action.

Profit warnings ignored

Speaking on BBC Breakfast, shadow business secretary Rebecca Long-Bailey, said: "Why did the government not act when profit warnings were issued? Why did they wait until the 11th hour to step in?"

Indeed, the company issued three profit warnings in the last six months, and in November and December warned that it was close to coming in breach of banking covenants on its financing.

The problems at Carillion were thought to stem from a number of public private partnerships that experienced expensive delays - these included construction at the Royal Liverpool Hospital and the £550m Aberdeen bypass.

Chairman Green continued: "Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future. . .

"In recent days however we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision.

"We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers."

Market reaction

Rival outsourcers can be expected to benefit in the coming weeks as Carillion's contracts are retendered, and among the gainers on the FTSE 100 on Monday morning were Capita, a rival government contractor, whose shares climbed more than 3%, and GKN, the engineering group, which climbed 2.2%.

The second-tier FTSE 250 index was led by Serco which competed in many of the same sectors as Carillion. It's shares climbed 3.1% to 101.2p.