[Football] Carillion on the brink ?

[Bozza]

We here it on the news along with print media with 'everyone' having an input (not many solutions) but just how does a company run up huge debts

I don't know much about this specific case, but nearly all large companies carry what you would probably consider large amounts of debt. Borrowing to fund growth is perfectly normal and acceptable. Being able to service that debt is obviously pretty key though.

Even Apple, famous for the amount of cash they are sitting on (over $250bn), borrow heavily and now owes over $100bn.

 

[Martlet]

Audit heavyweight EY was placed on standby on Friday to step in as administrator if banks and the government could not thrash out a deal to save the firm.

EY was said to be favoured by the company’s directors, possibly because Lee Watson, a partner at the audit giant, is on secondment to Carillion, acting as a director and as the contractor’s chief transformation officer

Maybe that's why they weren't appointed?

 

[Dave the OAP]

People are also getting up in arms about awarding contracts to them, but again it is chicken and egg. If the government had turned around and said " you issue a profits warning, therefore no more contracts" there would have been an instant run on their shares, banks etc rushing to pull in overdrafts and the company could have collapsed immediately, at least we have had a few months to plan for this.

The bottom line in all of this is that government contracts are so mind boggling expensive and huge, these days, that there are very few companies who have the nouse to run and finance them. All this talk about renationalisation is cloud cookoo land as the government hasn't the money to run them. That is why successive governments have looked to farm out big utilities to the private sector. It's a political situation, but one that transcends politics really.

 

[beorhthelm]

... Carillion publicly gave a profits warning, and it was no secret they were seriously struggling

a profit warning is not on its own sufficient, and not uncommon for contractors or any business not doing quite as well as hoped for. prehaps the minister is culpable, then so is every minister involved in a contract for say the past 6-18 mths? just because a business has financial weakness that it has failed to address or hidden the severity of? how does it play out if the minister say they wont award because they look a bit frail...
my point is, focus on one person doesn't solve anything, its overlooking the process is/was flawed if we ended up awarding contracts to insolvent businesses. unless the minister is outright corrupt and awards despite being told of impending financial failure.

 

[CHAPPERS]

I see the BBC have reported that dividend payments were made but a few month ago.

The government is in a bind. Let Carillion fail and risk thousands of job losses, or bail it out and risk propping up a private company with public money - only a few months after it paid out dividends to its shareholders.

Odd that this would happen? No idea myself.

 

[Dave the OAP]

I see the BBC have reported that dividend payments were made but a few month ago.

....but t again, companies have to be very careful, because if they didn't declare a dividend, then Why would anyone invest in them? It is the way our society works , good or bad and so much is dependant on market confidence.

 

[CHAPPERS]

....but t again, companies have to be very careful, because if they didn't declare a dividend, then Why would anyone invest in them?

They wouldn't I guess because they were ****ed and needed sorting out?

 

[beorhthelm]

The bottom line in all of this is that government contracts are so mind boggling expensive and huge, these days, that there are very few companies who have the nouse to run and finance them. All this talk about renationalisation is cloud cookoo land as the government hasn't the money to run them. That is why successive governments have looked to farm out big utilities to the private sector. It's a political situation, but one that transcends politics really.

they dont have the expertise to run them. the alternative might be to run a massive ministry of works to build everything, but the track record for such things isnt great and ends up in exactly the same place if they are run poorly (tax payer pays out more). the solution it seems for departments to handle procurement better, having specialists in programme management to properly frame contracts and liase with mid-tier contractors, rather that rely so much on outsourcing that top level of management. but really, we're still going to have large companies involved in large projects somehow, so i dont know if there is any practical way to eliminate the risk.

And risk is what this really all about. if we were to play by the expected rules we'd let Carillion go bust, shareholders (who've already taken massive losses) lose everything and bondholders get x pence in the pound. the projects would all go on hold while all the financing was reallocated, prehaps a temp holding company for each project to funnel money to the subcontractors? but politically no one wants that, they want no one to be out of work and no pension fund touched etc, so some (on the left ironically) call for the business to be protected to avoid all that short term messiness.

 

[mikeyjh]

Due diligence

Nail on head - You don't have to do too much research to discover that Carillion were serially the low bidders for contracts in sectors they simply had no expertise in. There business practices were appalling, 120 day payment terms, holding back payments as guarantees of completion then basically relying on these funds to stay liquid. They were a mess and the govt must have known this so (as ever) incompetent or corrupt.

 

[Lower West Stander]

....but t again, companies have to be very careful, because if they didn't declare a dividend, then Why would anyone invest in them? It is the way our society works , good or bad and so much is dependant on market confidence.

Utter garbage.

There are loads of investible companies who don’t pay dividends. Basic cash flow analysis will tell you whether a company should be paying a dividend or not.

If the company were concerned about their liquidity, there is no way they should have been paying a dividend. When commodities dropped a couple of years ago all the miners suspended payouts to shareholders as a means of preserving cash. A company with liquidity issues should be managing working capital and debt service ability before even thinking about doling out shareholder cash.

Shareholders come dead last in repayment scenarios and the same should be for dividends. Indeed using a dividend to prop up your share price is a recipe for disaster.


Sent from my iPhone using Tapatalk

 

[Renegade]

Where there's big business/big money there are big bribes.Maybe that's how this company was able to obtain contracts taking into account it's financial situation.

 

[Herr Tubthumper]

a profit warning is not on its own sufficient, and not uncommon for contractors or any business not doing quite as well as hoped for. prehaps the minister is culpable, then so is every minister involved in a contract for say the past 6-18 mths? just because a business has financial weakness that it has failed to address or hidden the severity of? how does it play out if the minister say they wont award because they look a bit frail...
my point is, focus on one person doesn't solve anything, its overlooking the process is/was flawed if we ended up awarding contracts to insolvent businesses. unless the minister is outright corrupt and awards despite being told of impending financial failure.

I agree a profit warning isn’t sufficient but hour by hour more and more is coming out about the perilous state of Carillion. The government must have known about this, or if they didn’t then it’s even more damning. As an aside why award so much critical work to a single company? This alone is bad practice.

 

[beorhthelm]

I agree a profit warning isn’t sufficient but hour by hour more and more is coming out about the perilous state of Carillion. The government must have known about this, or if they didn’t then it’s even more damning. As an aside why award so much critical work to a single company? This alone is bad practice.

agree, and that should be the focus of debate and analysis.

 

[CHAPPERS]

How did a company with so many government contracts get away with this 120 days bullshit?

 

[CHAPPERS]

Small businesses at risk after Carillion's failure

The Federation of Small Businesses has warned that many small UK businesses could be dragged down by Carillion’s failure.

FSB national chairman Mike Cherry says Carillion made its suppliers wait FOUR MONTHS before paying their bills.

This means that many SMEs are nervously waiting to see if those invoices will still be paid. If not, they could be driven to the wall themselves.

Cherry says:



“It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.

“These unpaid bills may well go back several months. I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid.

“Sadly these kind of poor payment practices are all too common among some big corporates. Perhaps if they weren’t it would be easier to spot the warning signs of a huge company in financial trouble.

“When the dust settles on this sorry saga, there is also a wider lesson to learn about the concentration of public contracts in the hands of a small number of very big businesses. Public procurement must be much more small-business friendly, in which it is easier for small firms to navigate the system and the Government should prioritise meeting its target of at least one third of taxpayer-funded contracts going to smaller firms.”

 

[Springal]

Small businesses at risk after Carillion's failure

The Federation of Small Businesses has warned that many small UK businesses could be dragged down by Carillion’s failure.

FSB national chairman Mike Cherry says Carillion made its suppliers wait FOUR MONTHS before paying their bills.

This means that many SMEs are nervously waiting to see if those invoices will still be paid. If not, they could be driven to the wall themselves.

Cherry says:



“It is vital that Carillion’s small business suppliers are paid what they are owed, or some of those firms could themselves be put in jeopardy, putting even more jobs at risk besides those of Carillion’s own employees.

“These unpaid bills may well go back several months. I wrote to Carillion back in July last year to express concern after hearing from FSB members that the company was making small suppliers wait 120 days to be paid.

“Sadly these kind of poor payment practices are all too common among some big corporates. Perhaps if they weren’t it would be easier to spot the warning signs of a huge company in financial trouble.

“When the dust settles on this sorry saga, there is also a wider lesson to learn about the concentration of public contracts in the hands of a small number of very big businesses. Public procurement must be much more small-business friendly, in which it is easier for small firms to navigate the system and the Government should prioritise meeting its target of at least one third of taxpayer-funded contracts going to smaller firms.”

I've worked for a small business that was reliant on large outsource companies and we saw this and ultimately it drove the company to the wall because of exhausting cash flow. Sadly if Carillion go under, these small businesses are unlikely to see anything. Once the administrators get involved they make sure they get what they are owed up front, rest goes to tax man / VAT and leaves very little..

 

[CHAPPERS]

So shareholders got paid but not the small businesses that they owed money to.

 

[Trigger]

Shame, Kayleigh was a great song

 

[beorhthelm]

How did a company with so many government contracts get away with this 120 days bullshit?

now that is the biggest question from this episode and something that government can and should do something about. if Conservatives want to be party of business they should legislate that invoices must be settled within 30 days/month or similar. if all companies has the same terms, no one would lose out. companies have to pay wages monthly so everything should flow from that base requirement.

... Once the administrators get involved they make sure they get what they are owed up front, rest goes to tax man / VAT and leaves very little..

an aside, the taxman is no longer a preferred creditor and has to get in line with everyone else.

 

[Gwylan]

now that is the biggest question from this episode and something that government can and should do something about. if Conservatives want to be party of business they should legislate that invoices must be settled within 30 days/month or similar. if all companies has the same terms, no one would lose out. companies have to pay wages monthly so everything should flow from that base requirement.

As, I believe, is the case in Germany.

I have spent the best part of the morning chasing up money that's owed to me, some of it from work I did last summer. I have bills to pay every month, I see no reason why I should have to wait three, four or five months to be paid.

I wouldn't expect anything from the Conservatives on this though, they're the party of big business, they'll do little to help the SMEs (and it's the bigger companies that benefit from this current arrangement, it's notable that the people who takes ages to cough up are PLCs while the micros businesses pay me quickly) but it could be a good policy for Labour to adopt.