Tens of thousands of businesses exposed to the collapse of Carillion face an even more uncertain future because they did not take out credit protection against its failure.
Figures from the insurance industry suggest that not much more than £30 million in cover will be paid out to small companies claiming for non-payment of invoices after Carillion went bust last week. About 30,000 British businesses are reckoned to have been affected and are owed as much as £1 billion in total.
The construction and public services contractor was put into the hands of the official receiver ten days ago, the largest building company collapse in British corporate history. The future of nearly 20,000 directly employed workers is at risk and more than 100,000 workers in the supply chain may be affected. The collapse has thrown into confusion numerous public services that had been delivered by Carillion in schools, hospitals and prisons and across the government and armed forces. It has put on hold the construction of hospitals in Birmingham and Liverpool.
The Association of British Insurers said that it believed only £31 million would be paid out by trade credit insurers to firms in the Carillion supply chain — those either employed as subcontractors or businesses working for subcontractors.
Few companies take out such cover. ABI figures show the industry paid just £210 million in trade credit insurance in 2016. The insurance industry says it understands that credit cover is not always a priority, but one executive warned: “It is not just the cover that is provided, but the insurers also act as an early warning system because they will have market intelligence on what is happening in a sector and may be able to advise businesses to revise their exposure to certain customers.”
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There have been several high-profile insolvencies in recent months, including Palmer & Harvey, the retail supplier, and Monarch Airlines.
Mark Shepherd, assistant director at the ABI, said: “The demise of Carillion is a powerful reminder of how trade credit insurance is an essential business tool that helps firms to trade and expand in the UK and overseas.
“For all businesses, bad debt could easily put their day-to-day operations at risk, threatening the jobs of their employees. One insolvency can risk a domino effect to hundreds of firms in the supply chain.”
Next week MPs will start gathering evidence on the collapse of Carillion. On Tuesday, officials from the Financial Reporting Council, the Insolvency Service and the Carillion pension fund have been asked to appear before a joint hearing of the business and work and pensions select committees.
The week after, all Carillion executives of the past 14 months have been summoned, as well as Philip Green, the chairman and a former boss of P&O and United Utilities. The other directors are: Richard Howson, the former chief executive; Keith Cochrane, his successor as interim chief executive and a former senior independent non-executive; and the three finance directors in ten months Richard Adam, Zafar Khan and Emma Mercer.
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Frank Field, chairman of the work and pensions committee, criticised KPMG, the auditor, saying: “Another day, another company goes bust hot on the heels of a clean bill of health from a Big Four financial services firm.”
Rachel Reeves, chairwoman of the business select committee, said: “Carillion has the hallmarks of another corporate governance failure, with directors asleep at the wheel while the business went off a cliff.”