Credit Management March 2018

INSOLVENCY
The special manager
The curious case of Carillion’s collapse and the
unusual government intervention.
AUTHOR – David Kerr MCICM
David Kerr
LEAVING aside any claims
made by those in the football
world, the title special
manager has cropped up in
recent reporting of one of the
very significant insolvency
cases. Those following the coverage of the
Carillion collapse in January (with its £1.5
billion of debt) will have noted perhaps that
the usual references to administrators have
disappeared, to be replaced by mention
of the Official Receiver (OR) and special
managers.
So, what is a special manager, how does
that role differ from that of an administrator
or liquidator, and why is there one in this
case? There was talk in the media of an
administrator being appointed at one
point, but in the end the company went into
compulsory liquidation – in other words it
was wound-up by the court.
A number of factors have to be present to
facilitate an administration in a case where
some ongoing trading is essential, and not
least among those is a source of funding.
Whatever the reasons in this particular case,
the result was a petition to the court for a
liquidation. As with any such petition, once
the court has made a winding-up order, or
as in this case an order for a provisional
liquidation, the company’s affairs fall into
the hands of the Official Receiver.
Compulsory liquidations are relatively
rare, compared to the more common
voluntary liquidation. The recentlyreleased
figures for 2017 show there were
under 2,800 compulsory liquidations in the
year, compared to approximately 12,000
creditors’ voluntary liquidations; and
compulsory liquidations are in decline. The
provisional figure for Q4 is down nearly 25
percent on the same period in 2016.
A STRANGE APPOINTMENT
Surprising then to see this procedure used
in such a high-profile case, especially as
in most compulsory liquidations the OR is
dealing with companies that have closed
or are being shut down, trading having
ceased. In the Carillion case, there were
rather special circumstances and the
need for special measures. The company
was involved in many very substantial
contracts – a number of those where it had
been engaged by the Government to run
building projects for the public sector, such
as hospitals. It was the UK’s second-largest
construction company, so an overnight
shut-down and complete cessation was
clearly not a sensible option. Its complex
supply chain was also a factor, with the
Government wanting to support continued
trading amongst creditors.
The OR’s role is to take charge of the
company’s assets and ensure that essential
matters are dealt with; it is largely a
holding role, often in a case like this with
a view to appointing a liquidator in due
course. Indeed, in this case, the OR is
provisional liquidator – a mechanism
by which a liquidator can be appointed
at short notice. The OR is part of the
Government machinery – the liquidator of
last resort in some senses, and part of the
Insolvency Service – an executive agency
of the Department for Business, Energy &
Industrial Strategy.
So in one sense at the moment the
company is in state hands, but the OR’s
offices do not have the resources to run
a company the size and complexity of
Carillion. This is where the private sector
comes in (ironically perhaps given some
of the debate triggered by the Carillion
collapse). The special manager is a looselydefined
role, but one provided for in statute
– essentially, an appointment of a specialist,
accountable to the OR, to help deal with the
issues on the ground, and help the OR map
a way forward. The court sets the terms
of the special manager’s remit. PwC has
been appointed to carry out this function –
ensuring essential contract works continue
and key staff are retained and paid. In
due course, the provisional liquidator will
be replaced by a (permanent) liquidator,
who will take over the OR’s and special
manager’s responsibilities.
One aspect will remain with the OR.
In its role as investigator, the OR will look
at the conduct of the directors and report
to colleagues in BEIS on whether any
disqualification proceedings should be
commenced. That is not to comment on
the directors’ conduct in this case – it is a
requirement in every liquidation.
So, we have seen the rare appointment
of a ‘special one’, but (perhaps as in other
walks of life) it is a short-lived appointment!
David Kerr MCICM is the Chief Executive
of the Insolvency Practitioners Association
(IPA).
The Recognised Standard / www.cicm.com / March 2018 / PAGE 11