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The collapse of Carillion

Published Tuesday, January 30, 2018

Carillion entered compulsory liquidation on 15 January 2018. This briefing looks at the causes and consequences of Carillion's collapse.

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Compulsory liquidation

A compulsory liquidation order was made against Carillion, on the petition of the companies’ directors, on 15 January 2018. Compulsory liquidation is a court-based procedure through which company assets are realised for the benefit of creditors.

Various business commentators have suggested that Carillion went into compulsory liquidation rather than administration because it had no real assets left to sell. It had contracts, but they were either too complex or insufficiently valuable for the banks to lend against.

The High Court appointed the Official Receiver as liquidator. The liquidator must act in the interests of the body of creditors as a whole.

It is a feature of the Carillion liquidation that the Official Receiver is expected to prioritise the continuity of vital public services while securing the best outcome for creditors. Unless told otherwise, all employees, agents and subcontractors providing public services are being asked to continue to work as normal and they will be paid for the work they do during the liquidations by the Official Receiver.

It is too early to predict what, if anything, creditors will recover. The Special Managers have already said that there is no prospect of any return to Carillion shareholders. The Insolvency Service has also announced that bonuses and severance payments have not been made to directors since the date of the company’s collapse.

On 16 January 2018, the Government announced that the Official Receiver’s investigation into the causes of the failure of Carillion is to be fast-tracked. The investigation is to look at the conduct of directors in charge at the time of the company’s insolvency and also the conduct of previous directors, to determine whether their actions might have caused detriment to the company’s creditors (including detriment to any employees who are owed money or to the pension schemes).


On 10 July 2017, Carillion announced that its profits would be hit to the tune of £845 million. As a consequence, its chief executive resigned and there would be no dividends that year. The shares lost 70% of their value over the announcement and the two days that followed.

Although the July 2017 profit warning marks the beginning of the end for Carillion, it is poor decisions in the years leading up to it that caused the company serious trouble. Of the £845m charge, Carillion said that £375m related to the UK (mostly three PPP projects) and £470m to overseas markets (mostly exiting markets in the Middle East and Canada).

On 29 September 2017, Carillion’s half-year financial statements revealed a total hit to the company’s worth of £1.2 billion – enough to wipe out the profits from the previous eight years put together.

In the eight years from 2009 to 2016, Carillion paid out £554 million in dividends, three quarters of the cash it made from operations. In the five-and-half-year period from January 2012 to June 2017, Carillion paid out £333 million more in dividends than it generated in cash from its operations.

Over the eight years from December 2009 to January 2018, the total owed by Carillion in loans increased from £242 million to an estimated £1.3 billion – more than five times the value at the beginning of the decade.

Source: Carillion’s annual financial statements; * Interim financial statement for the six months ended 30 June 2017; ** Financial Times (16 Jan 2017)


Carillion has 13 UK defined benefit pension schemes with 27,000 members. The schemes have an estimated Pension Protection Fund (PPF) deficit (the shortfall compared to what is needed to pay PPF compensation levels) of around £800-900 million (Letter to Work and Pensions Select Committee, 26 January 2018; Financial Times, 15 January 2018).

Former Pensions Minister Steve Webb told the Guardian that “Carillion would be the biggest-ever hit on the PPF” but that the lifeboat would be able to “comfortably absorb” the Carillion scheme.

Seven of the Carillion pension schemes, with 6,000 members, are already in a Pension Protection Fund assessment period (to determine whether the PPF should take responsibility for them).

Carillion’s pension deficit was one of the largest among FTSE 350 companies. It was the 15th or 7th largest on different measures.

Public sector contracts

Carillion was a major supplier to the public sector in the UK, delivering around 450 contracts with government across a range of areas. The government are providing funding to the Official Receiver to maintain public sector services following the insolvency of Carillion, until a suitable alternative is found.

Suppliers and payment terms

Carillion owed around £2 billion to its 30,000 suppliers, sub-contractors and other short-term creditors. Most of them risk getting little or nothing back from the liquidation, because they have low priority in the hierarchy of creditors.

Carillion had been criticised for paying its suppliers late since at least 2013, when it had increased its maximum payment terms to suppliers to 120 days.

The average number of days taken by Carillion to pay its suppliers and subcontractors is estimated to have been around 90 days between 2011 and 2016.

Commons Briefing papers CBP-8206

Authors: Federico Mor; Lorraine Conway; Djuna Thurley; Lorna Booth

Topics: Companies, Construction industry, Insolvency, Pensions

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