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Carillion Insolvency – How the Law Creates Order from Chaos

Hospital or OfficeSome companies are so large and strategically important that their insolvency can have grave national implications. However, as one case concerning a subsidiary of Carillion plc showed, the law is well equipped to manage such crises in a way that minimises damage to the wider economy.

Carillion employed thousands of people and had a plethora of close contractual and other links to public authorities when it and five of its subsidiaries were wound up in January 2018. The group’s finances were managed centrally and another subsidiary, which provided services to hospitals, was left both cash flow and balance sheet insolvent.

In those circumstances, its directors made an emergency application to the High Court under the Insolvency Act 1986 for a compulsory winding up order. In ruling on the matter, the Court noted that the directors had quite rightly taken the view that continuing to trade was not an option that could be contemplated.

The possibility of placing the subsidiary into administration would ordinarily have suggested itself. However, given the total absence of cash in the business, no funding was available to enable such a course, however desirable it might be. In the circumstances, the Court found that a compulsory winding up order was the only viable alternative and the entirely right course to take.

The subsidiary’s insolvency would be closely supervised by the Official Receiver, who had already been appointed as liquidator of the wider Carillion group. Given that the Official Receiver lacked the resources required to take on such a huge task unaided, the Court approved the appointment of three special managers, under Section 177 of the Act, in order to provide necessary assistance.