On the back of my blog “Carillion – who is protecting the Trade and other Unsecured Creditors?”, I was contacted by an unsecured trade creditor and made some recommendations. As these recommendations are not “get to the court house first before the other unsecured creditors” but to co-operate with others in the same boat, there is every reason to share them – and to ask others to on-share them.
I suspect that it is the position that thousands of suppliers find themselves in without knowing it and towards larger companies, who are VC-owned behind the scenes. Just to say that all the evidence I can see points to Carillion being structured like this. It may turn out not to be, but the course of action I suggest below does not depend upon its being true.
This is for short-term action. In the long term all the unsecured creditors should form an Action Group, possibly together with the trustee of the pension fund, and pursue avenues that it would be counter-productive to share here.
The recommendation I gave for the short term was in two parts:
- Agree to nothing that comes from the liquidator, Carillion, or any of Carillon’s customers;
- Identify the other suppliers into the same contract that you were supplying into, which may involve going to the site of the contract, chatting to people around, in cafes and pubs nearby, and then….
- Form your own contract-specific Action Group, making sure each participant has the list of invoices they are owed;
- Get an injunction through a lawyer to stop the liquidator/Carillion dealing in that contract until the related debts have been “discharged”;
- Require as the mechanism of “discharge” that each creditor be issued with a Stand-by Letter of Credit by a bank (the Issuing Bank) for the full amount owed, the availment of which will involve the Issuing Bank avalising a Bill of Exchange drawn at 180 days’ sight upon its presentment by the Beneficiary (which is the creditor).
This may sound complex but it isn’t. Letters of Credit are usually used in international trade but there is no reason why they cannot be used here. The Letter of Credit in this case would specify just one document that the Beneficiary has to produce: a Bill of Exchange, which looks is like an over-sized cheque, and is filled in and sent by the Creditor rather than by the Debtor. The Creditor presents the Bill to the Issuing Bank of the Letter of Credit, who availises it in the panel at the left-hand side of the Bill. The avalised Bill of Exchange is then an unconditional and irrevocable undertaking to pay by a bank, not of Carillion or the liquidation estate.
The 180 days maturity period (which is the meaning of the phrase “drawn at 180 days’ sight”) gives the bank and its customers behind it (Carillion, the liquidator, other banks..) six months to sort themselves out and then the bank has to pay the Bill of Exchange, whether it has got the money from the other parties or not. Since the Bill is an obligation of the bank and will not mention Carillion, the liquidator or anyone else on it, the creditor should be able to discount the Bill straight away after it is avalised and probably without recourse i.e. the creditor will then have the face value of the Bill less the discount fee, and no risk of money being reclaimed. The discount fee would be the six months of interest but calculated on the credit risk of the bank, not of Carillion.
The creditors’ leverage in this case – if they can get a contract-specific Action Group together and the injunction – is that the injunction compels work on the contract to stop pending satisfaction of their claims: it would be grossly unfair if the liquidator got new companies to start supplying and getting paid whilst the claims of past suppliers under the same contract were unsatisfied. These are major public contracts and they are ones that the government and the liquidator want to keep going, so that gives the creditors their leverage.