Today I focus on some of the wider implications and fall out from the Carillion situation.
As many commentators have already pointed out, it’s not just the main Carillion companies that may now find themselves in severe financial difficulties as a result of the insolvency. Smaller subcontractors – many of them family-run enterprises – may find themselves having to consider their position with regard to the Pension Protection Fund (PPF) and the Pension Regulator. Of course, it’s more likely that smaller employers may not have Defined Benefit arrangements or other arrangements that have already been closed, but nevertheless, the issue of pensions and wider employment difficulties (such as having to make staff redundant) cannot be ignored. Even small enterprises can have significant pension liabilities.
Speaking of the Pension Regulator, while I have already mentioned that it may have some questions of its own to answer in respect of its oversight of Carillion, there is no doubt that it will also be looking closely not only at the Trustees of the schemes but also at the employers and even individual directors of those Employers to see if it might be appropriate to use its so-called ‘Moral Hazard’ powers to seek additional funds. It can seek Financial Support Directions or issue Contribution Notices in certain circumstances, and the sums sought can be significant. Although Sir Philip Green eventually paid an additional £350min respect of the BHS fund, this was in fact only after detailed negotiation and threats of proceedings.
What is also interesting right now is the less obvious domino effect. Already the markets are becoming jittery about Interserve, a similar conglomerate to Carillion, which may be vulnerable, and the Trustees of the GSK pension arrangements – whose employer is currently the subject of a takeover negotiation – have made it very clear that no deal will be acceptable to them without a significant cash sum being paid to the pension scheme to help ameliorate its deficit. I suspect there is still much to come in the near future. Watch this space!