Don’t turn the alarm bells off just yet…(Carillion pt 3)

February 23rd, 2018
23 February

The alarm bells began ringing in accountancy firms across the West Midlands when the news of Carillion’s insolvency hit the media.

Although the story has now largely disappeared from the headlines, chartered accountants across the region are still working through the implications with client companies who were exposed, one way or another, to the collapse of the Wolverhampton-based giant.

The phones at IPD have been pretty busy, too, and in conversations with my accountancy colleagues I can hear those alarm bells ringing (metaphorically) in the background. My advice is – don’t turn them off yet, and I will tell you why at the end of this blog.

To complete this series of blogs on one of the largest corporate insolvencies in UK history, it has been heartening to see some positives emerging from the gloom. Nationally, the Government, the Federation of Small Businesses and other groups have put support measures in place; here, in Staffordshire and the West Midlands, our first-class chambers of commerce have been quick to respond with advice and helplines.

The most successful interventions to help businesses knocked sideways by the crash to survive the aftermath have been by switched-on professionals taking swift action to salvage something from the ruins.

Getting in touch with HMRC to claim bad debt relief on the VAT of unpaid bills has been one avenue, for example. VAT may be reclaimed for invoices that are outstanding for six months or more and judging by Carillion’s abysmal record on paying its bills there may be companies who could already benefit in this way. By the way, HMRC may also look kindly on requests for deferred VAT payments from businesses which are viable but struggling to find their feet after the sudden collapse – talk to them directly as soon as you can rather than waiting for a default and then trying to solve the problem…

Because several companies have stepped in to try and pick up the contracts that Carillion were working on, it is also essential that sub-contractors let the new players know that they are still trading themselves and want to be involved again going forward.

Perhaps the best action a Carillion-affected business can take is to act quickly and positively to reduce the impact. This is the advice that most accountants will be giving their clients. Contact the Special Managers at pwc (here) to salvage what you can (it almost certainly won’t be much and will take some time, possibly years…), prepare for a hit to your cash-flow, talk to HMRC and even look at cutting costs, if needed, to survive but above all do it now.

Looking ahead, it has been very concerning to see the dramatic falls in the world’s stock markets in mid-February. What has this got to do with Carillion? I hear you ask. Just this – investors have been profit-taking because, along with wages rising in the United States, there are definite signs of inflation in the U.S. economy. The Fed’s main weapon against inflation is to raise the bank rate – and if the dollar is marked up you can bet that the Bank of England will look at raising the bank rate here, too.

I wrote in earlier blogs that some local businesses struggled when the UK bank rate went up by just 0.25% last November (because margins are very tight at the moment). Some pundits a few weeks ago were saying that there was a real possibility that there could be not one but TWO rate rises this year. With UK inflation exceeding 3% and the falls in global stock exchanges, such rises are looking increasingly likely.

For Carillion-affected companies that are managing to survive at the moment, such rate rises could be the straw that breaks the camel’s back. I know this is a matter of concern for my colleagues in the accountancy profession – which is why they need to keep those alarm bells ringing.

If any of my accountancy colleagues (or indeed any companies or businesses themselves) need any advice or just to run something past me, please get in touch.