Carillion Collapse - What can small businesses do in the event of a sudden financial shock.
You will have heard that the construction giant Carillion went into liquidation this week. News of the collapse came as a shock to many as they skipped the step of administration and went straight to insolvency without attempting to keep the business running as a going concern.
The public-sector contracts awarded to Carillion are set to continue as the government have stated that there are contingency plans in place where jobs can be brought in house or other contractors can fill in the gap left by Carillion. Where there is much more uncertainty is in the private sector where these contracts have much less protection. The Company provides services for HS2, the armed forces plus hospitals and schools.
In 2016 Carillion spent £952m dealing with small businesses. These businesses are now waiting to be paid. Build UK which represents small businesses has said that around 30,000 businesses are owed money by Carillion. The Federation of Small Businesses has said that these companies will now be at the back of the queue for payment and it is unlikely that the Carillion assets are going to cover their debts.
Build UK have also said that of those local businesses who see a big contractor fail, 18% do not survive the next five years.
This incident raises the question of what options are open to employers should they suffer a sudden loss of revenue and need to cut costs.
The first option is to look for efficiency savings throughout the business by stopping unnecessary spending, reducing hours or stopping overtime This will make a difference if the loss in revenue is relatively minimal and you can get back onto a better footing without having to make more dramatic changes.
The second option may be to consider layoffs or short time working. If you have the right in your contract and there is a sudden short-term loss of work, and you are not able to provide the same level of work for your employees, you can exercise the layoff and short time working clause which will mean that your employees will not work for a period of time and will not receive their normal pay. Please be aware that an employee who has been laid off for 4 complete weeks or 6 weeks within a 13-week period can apply for redundancy pay.
The third and final option is redundancy. You would usually need to consult with your employees for this to be fair and we would recommend contacting Empire prior to this so we can advise you on the process. This step maybe a necessary measure to ensure the viability of your business moving forward.
Empire can assist you with issues relating to cost cutting and redundancy. Please call 01224 701 383.