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Carillion – reducing your risk exposure in the supply chain

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Whilst the full impact of Carillion’s liquidation remains uncertain for creditors and suppliers, it acts as a timely reminder to review trading relationships and position in the supply chain.

Whilst some early positive steps have been taken, at least in the short term, to stabilise the Carillion supply chain there will inevitably be contagion across the construction sector and beyond. The full impact of that contagion is hard to assess at this stage and it may take several months before the full impact is known.

Perhaps somewhat unusually for a business the size of Carillion, it has entered compulsory liquidation, with PWC being appointed as Special Managers, rather than entering administration.  Administration creates a moratorium against creditors taking action and is generally used where a business can be traded on whilst a buyer is found or there is an orderly realisation of its assets. Full details of the Carillion companies that have entered liquidation can be found at:

https://www.pwc.co.uk/services/business-recovery/administrations/carillion.html

In light of Carillion’s liquidation, suppliers and creditors should be actively reviewing their contractual position to ascertain:

In the context of ROT businesses should ensure that not only are those terms incorporated into the contract between the parties but also that, as a supplier, you can identify your product as having been supplied by you as opposed to anyone else. If you believe you have ROT you need to act swiftly as once product has been incorporated into a build or changed identity, it is harder to recover it – this is of particular relevance in the construction sector. We frequently find in insolvency scenarios that prompt action where there is valid ROT provides leverage for a supplier to come to a commercial deal regarding the ongoing use or onward sale of their product.

As well as reviewing your contractual position, you should also consider whether you have commercial leverage beyond having a strong contractual position. By way of example:

If you think a debtor is in financial difficulty, then you should consider acting quickly to put yourself in the best position possible. This may include:

How can Clarion help?

Clarion has one of the leading Corporate Recovery and Insolvency teams in the region and has significant experience in dealing with companies in financial distress and in helping organisations to develop rapid response strategies, only some of which are set out above, to minimise risk to their business. If you have any concerns with the impact of the Carillion liquidation or otherwise we are happy to discuss your specific circumstances and you can contact one of our experienced team members

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.