This is No Game of Forfeits

I tell my clients that you can mess the courts about, but you cannot (and must not) ignore them. And if you do, then unpleasant things are bound to happen to you. This is a salutary tale.

The Times reported on Saturday 15.9.19 the sad and unusual case of Malik v McCadden. I can’t give you a link because of their paywall. But the brief facts are that McC bought a long lease of the upper floor of a house in North London from M (who lived on the ground floor) for some £518,000 in 2016. The lease appears to have contained the usual clauses prohibiting structual alterations without consent, but shortly after completion McC seems to have carried out substantial alterations including resiting the gas boiler, removing fixtures, rendering the outside, removing floorboards and installing a new central heating system, bathroom and kitchen.  He did not ask for consent for any of this.

The building work was disruptive to M, and McC had removed carpets, in breach of the lease, making the floors noisy. He also failed to pay his share of service charges for insurance and management.

M tried to get access to the flat to see what exactly was going on but was refused on 5 occasions, and correspondence was ignored. So M had to go to court and ask the court to bring McC’s lease to an end – to forfeit it. This is the nuclear option, because it means the tenant loses the property without any compensation, and the landlord can sell it again to someone else. The law has therefore imposed a large number of restrictions on doing this.

It isn’t as easy as just issuing a summons. Before issuing the landlord has to serve  notice under s146 Law of Property Act 1925. This warns the tenant of the breach, requires them to rectify it, and to pay the landlord compensation, and gives the tenant a reasonable time to do so. The only time this isn’t needed is if the rent is in arrears, which wasn’t the case here.

But you can’t even serve a s146 notice without a determination by a court or tribunal that the tenant is in breach unless they admit it – s168 Commonhold & Leasehold Reform Act 2002. So M applied to the First Tier Tribunal (Property Chamber) – the old LVT – for the appropriate decision. The FTT sent out their directions, advising McC to take legal advice, and arranging a site-inspection. McC ignored these, and didn’t let the FTT in. They went ahead with their proceedings and decided in November 2017 that the breaches of the lease were serious, and that a s146 notice could be served. They advised McC to take advice. He continued to ignore them.

The s146 notice was served, nothing further happened and so the landlord issued proceedings in the County Court at Willesden asking for forfeiture and possession, and this was served and listed, no doubt many weeks ahead.

Now, the courts have always treated the power to forfeit a lease as being just a form of security for the landlord, and will grant relief from forfeiture if the tenant applied for it and gives suitable undertakings to put things right, or pay the arrears of rent or service charges if applicable, and pay the landlord’s costs of having to go so far. This is a very old power, pre-dating even the Law of Property Act 1925, and the courts will nearly always grant it, or possibly give an adjournment for the tenant to get themselves organised, or make an order but postpone it for say 6 months to let the tenant sell the property, because they don’t want to push the nuclear button any more than most landlords want to ask for it to be pushed. However, a tenant has to ask for relief in order to get it, and it appears that McC didn’t attend the hearing and so an order was made in August 2018  bringing the lease to an end and giving possession to M.

This is pretty disastrous for McC. He has probably* lost a flat worth some £600,000 (according to The Times article) and M has a windfall, and the prospects of a better neighbour to boot. But the case has been reported, and covered in this blog, because it is so very unusual for things to go so far. Virtually all cases of this sort come to an end after the FTT decision that the tenant is in breach, or when the s146 notice tells the tenant that the landlord is seriously going for possession, or at the very latest when the proceedings are issued, and the tenant makes an application for relief, which nearly always succeeds. But if you do nothing, don’t attend the hearings, and don’t take advice (or possibly don’t listen to the advice you are given) then it will certainly lead to tears by bedtime.

The tenant’s explanation – that he was unaware of the FTT proceedings, and unable to defend the County Court proceedings after being let down by lawyers – must be weighed against the fact that the FTT decided that he knew about the proceedings, and that the County Court would have been satisfied that he had been served with the s146 notice, and the court proceedings before making its order.  He is unfortunate in that he doesn’t have a mortgagee. They normally wade in with gusto if there is any risk to their mortgage security, paying arrears, applying to be joined into the case and asking for relief themselves, as well as harrying the tenant to get things resolved without delay.

Can you blame the landlord, M? Well, what else could they do to protect their investment, and ensure that the tenant sticks to the terms of the lease? This is the way leases work, and normally – probably in 99 cases out of 100 – you don’t get an order for forfeiture. I have never actually come across a forfeited long residential lease, although I have got pretty close on occasions, in more years than I care to remember acting for landlords, and tenants, in this field.

And the reason for the probably*? Well, it is still possible to apply for relief even after the order has been made, although the tenant will need to get on with things, and admit that they are in breach in the ways that the FTT decided, and give credible undertakings to put things right. Given McC’s history, this doesn’t look too promising.

There is a good, and more detailed, piece on this by Nearly Legal, and lots of comments on Twitter and elsewhere. It is really one for the records.

 

Advertisements

Can I Come In? – important change

In 2016 I posted a piece on enforcing suspended possession orders, following the CA case of Cardiff CC v Lee which confirmed that following the changes in the CPR in 2014 you had to apply to the court for permission to enforce a suspended possession order before applying for a warrant of possession. The development caused quite a stir at the time, as many landlords weren’t doing this.

Well, from 1st October 2018 they won’t need to bother in the most common case – the non-payment of arrears of rent or service charges – because there is a new clause being inserted into CPR r83.2(3)(e) which reads:

after “has been fulfilled” insert “(other than where non-compliance with the terms of suspension of enforcement of the judgment or order is the failure to pay money)”.

It is still necessary if there are other terms – the noisy dog for example – but no need if it’s just non-payment of money. You certify the breach on the application for a warrant – form N325 – and that is it.

 

The Secret Barrister – Stories of the Law and How it’s Broken

Now I don’t usually do book reviews here. It’s not that sort of blog. But this isn’t the usual sort of book. As the title (above) says it tells you how the law is broken – not as in speeding or murder, but as in a system failing to work properly or, in some cases, at all.

Written by the well-known (and strictly anonymous) criminal barrister and blogger really  known on Twitter as @BarristerSecret (and whose blog is to be found here) it came out in March and has shot to the top places of the bestseller lists and stayed there for weeks.  And although I haven’t done any criminal law since shortly after coming to Coventry (in the days when I really was Coventry Man) I bought and read it. Many of you will have also done this, and the rest of you ought to buy and read it too, because it is important, and talks about things that matter.

He (or she) gives a view of the state of the criminal justice system in England & Wales today, as seen from the coal face. And it isn’t a pretty sight. The basic problem is gross underfunding for many years, with the result that there aren’t enough courts, or judges & staff, or people and resources in the CPS prosecution service, or the police, to provide an even half-decent system. And the payments to the independant lawyers concerned – the solicitors and barristers – are appallingly low, with the result that fewer and fewer lawyers will do the work, and those that are left don’t have the time and resources to investigate cases, or prepare for and attend the trials. And things will get worse as the cuts to the system continue to bite, and those that are left give up the struggle.

Now many of you may feel that you are just not going to come across the criminal justice system, so it really isn’t your problem. You aren’t criminals. But the book shows

  • how it is very easy to get caught up in some incident and then get picked as the perpetrator from, say, a dubious CCTV film, or by a dazed victim;
  • or to be accused of some historic abuse allegation, which the police feel they have to take all the way for political reasons;
  • and how many victims fail to get justice because an otherwise strong case against the perpetrator falls over because of administrative incompetence and overwork.

And it is, anyway, a poor society which allows those accused of crimes, and liable to long periods of imprisonment, or other penalties, to be convicted of things that they didn’t do, and against which they are unable to defend themselves.

There is lots more – and they put it far better than I ever can here.

The book is amusing, challenging, hard-hitting, perceptive, and a must for anybody interested in Britain today. Go out and get one!

Note The book The Secret Barrister – Stories of the Law and How it’s Broken – is published by Macmillan in hardback and is available via Amazon, or at the shops.

 

The Risks of Do-it-Yourself – Barton v Wright Hassall

There are a lot of Litigants in Person (people acting for themselves) about these days. With the virtual abolition of civil Legal Aid and much more rigorous selection by No Win No Fee providers, a large number of people are more or less forced to act for themselves in many circumstances when this is far from ideal.

Predictably, they tend to make something of a mess of things from time to time, usually caused by lack of the technical knowledge needed for litigation, with a sketchy knowledge for the Civil Procedure Rules that govern the process, and little experience of how courts operate, and what they need to be told and how to do it. This has lead to calls in some circles for LiPs to be excused from complying with the CPR, provided they are not so far adrift that they cause serious prejudice to their opponents, or real inconvenience to the courts. In fact some people have been saying that the CPR should be interpreted this way already. Others say that the way forward is either to simplify the CPR for everybody, or to provide a simplified system that LiPs have to follow, leaving the detailed rules to those proceeding with professional representation.

Now, those on the front line in litigation will know that a combination of these views have been applied in practice by the District Judges who have to deal with the bulk of the LiPs from day to day. If you are appearing against a LiP then you will know that there is rarely much point in taking technical points about procedure against them – short service of documents, failure to include all the correspondence, vague allegations in the Statements of Case, or in the evidence in support. Most DJs will just raise their eyebrows and extend the time or whatever, and you won’t get anywhere unless they are miles out of line. You do better to fight things on the merits, when the fact that their case has not been properly argued or supported by evidence will count against them in the end. I have written about this before, here.

Now last week the Supreme Court gave judgment on a case which some commentators said would enshrine the new flexibility for LiPs in law. Others were more sceptical. So read on.

Barton v Wright Hassall [2018] UKSC 12 was a professional negligence claim by Mr Barton against his former solicitors, a well known local firm in Leamington Spa. Mr Barton had fallen out with the solicitors acting on his divorce and engaged Wright Hassall to sue them for negligence. Then he fell out with WH and wanted to sue them as well. He either couldn’t find a third firm to help him, or possibly thought that he could do better himself – either way, he issued the claim himself and in the summer of 2013 the time came for him to serve it.

Wright Hassall had instructed solicitors to act for them – Berrymans Lace Mawer – and they confirmed that they were authorised to accept service of proceedings for their clients, so all Mr Barton had to do was to stick the papers in the post, or deliver them by hand to their offices. However Mr Barton decided that, as he had left things to the last day for service, he would serve them by email, and sent the appropriate paperwork off to BLM on 24th June 2013. His email itself was fine, and he appears to have enclosed the right documents with it. However, he had missed a vital point, and so service was held to be invalid. This is that in order to validly serve by email the recipient has to confirm that they are prepared to accept service in that way. Just giving an email address in ordinary correepondence won’t do, they have to say they will accept service by email. PD 6A to r 6 CPR is specific:

Service by fax or other electronic means

4.1  Subject to the provisions of rule 6.23(5) and (6), where a document is to be served by fax or other electronic means –

(1) the party who is to be served or the solicitor acting for that party must previously have indicated in writing to the party serving –

(a) that the party to be served or the solicitor is willing to accept service by fax or other electronic means; and

(b) the fax number, e-mail address or other electronic identification to which it must be sent; and

(2) the following are to be taken as sufficient written indications for the purposes of paragraph 4.1(1) –

(a) a fax number set out on the writing paper of the solicitor acting for the party to be served;

(b) an e-mail address set out on the writing paper of the solicitor acting for the party to be served but only where it is stated that the e-mail address may be used for service; or

(c) a fax number, e-mail address or electronic identification set out on a statement of case or a response to a claim filed with the court.

4.2  Where a party intends to serve a document by electronic means (other than by fax) that party must first ask the party who is to be served whether there are any limitations to the recipient’s agreement to accept service by such means (for example, the format in which documents are to be sent and the maximum size of attachments that may be received).

It all looks a bit dated now, although it was probably entirely relevant when it was introduced a number of years ago. BLM had given their email address, but hadn’t confirmed that they would accept formal service there, Mr Barton made no enquiries, and so he was all set up for failure. His email arrived, was acknowledged, but was not responded to until 4th July, by which time not only had the 4 months for service expires, but so had the limitation period of 6 years for his claim itself, so he couldn’t re-issue and serve properly. A lesson not to leave things so late.

The various courts all held that this was not good service. What is more, Mr Barton’s application for an order under r6.15 CPR, which allows the court to validate service in some circumstances, was refused. The rule provides:

Service of the claim form by an alternative method or at an alternative place

6.15

(1) Where it appears to the court that there is a good reason to authorise service by a method or at a place not otherwise permitted by this Part, the court may make an order permitting service by an alternative method or at an alternative place.

(2) On an application under this rule, the court may order that steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service….

Unfortunately for Mr Barton, the District Judge, the Circuit Judge on appeal, the Court of Appeal and the Supreme Court all refused to approve service under para 6.15(2), although the SC was split 3:2 against him. Lord Sumption, giving the majority judgment said that:

  • The fact that the email actually brought the claim to BLM’s attantion was not enough. If it was, then any form of service would suffice, which was not the case.
  • Service of proceedings is important as it is the start of the timing for a lot of what follows, and stops limitation running.
  • Service by email could be a problem in case it took place without the solicitors being aware of it – for example by arriving at an address whose holder was away. Hence there are rules which ought to be followed.
  • There is no special treatment for LiPs in obeying the CPR. “Unless the rules are particularly inaccessible or obscure, it is reasonable to expect an LiP to familiarise himslef with the rules which apply to any step which he is about to take.”
  • These rules are neither inaccessible nor obscure. They are published on the internet and referred to in the instructions sent out by the court when they issued the claim. They are clear to read and if Mr Barton had read them (which he hadn’t) he would have easily understood what they said.
  • It is incorrect to say that BLM were “playing technical claims” with Mr Barton. They had not said that they would accept service by email. They were under no duty to advise him, contrary to their own clients’ interests, that he should re-serve or re-issue before limitation expired.
  • There was no reason to rescue the claim using r6.15, which would cause Wright Hassall considerable prejudice.
  • The Human Rights argument  – that this was a breach of Mr Barton’s rights to a fair trial under Art 6 – got nowhere. Rules on service and limitation periods are widespread and fair.

He did however urge the Rules Committee to look at redrafting the relevant rules in the light of developments since they were first drafted.

Lord Briggs and Lady Hale dissented, and would have allowed the appeal and validated service, on the grounds that the steps taken were effective to bring the service to the Defendants’ attention. But they repeated that there was no special treatment for litigants in person, other than the fact that they generally broke the rules by ignorance rather than as part of the tactics of a professional litigator.

So that is that. No special rules for LiPs for now, but perhaps a little bit more flexibility (depending on who is judging your case).

And finally it is perhaps ironic that if Mr Barton had put the documents in the post on that last day they would still be in time even if the Royal Mail took a week to deliver them. Because the rules on the time for service of a claim form, contained in r7.5 CPR provide:

(1) Where the claim form is served within the jurisdiction, the claimant must complete the step required by the following table in relation to the particular method of service chosen, before 12.00 midnight on the calendar day four months after the date of issue of the claim form.

And the step for service by post (or DX) is just the posting of the document, not its delivery.

More details in the usual places –  Civil Litigation Brief gives practical advice as well.

More Problems for Landlords – Gas Safety

You may remember that from 1st October 2015 landlords of ASTs have had to give certain documents – Energy Performance certificates, Gas Safety certificates (if the premises have gas appliances) and the Government’s leaflet How to rent– to their new tenants and unless they do then they cannot serve a s21 Notice bringing the tenancy to an end.

The legislation is here – s21A Housing Act 1988, AST Notices etc regls 2015 (r2), AST Notices etc regls 2015 (r3), Energy Performance etc Regls 2012, and the Gas Safety etc regls 1998. 

The important part is in s21A Housing Act 1988:

(1)A notice under subsection (1) or (4) of section 21 may not be given in relation to an assured shorthold tenancy of a dwelling-house in England at a time when the landlord is in breach of a prescribed requirement.

Now, as far as the How to rent leaflet is concerned, if the landlord omitted to hand it out when the tenant moved in, all they had to do to correct things was to serve it late, and then they could serve a s21 Notice without any problems. In fact, as the form of the leaflet changes from time to time it is probably as well to re-serve it before a s21 Notce in any event –  see my piece on it here.

Many people thought that the same rule applied to the enargy and gas certificates, although there were rumblings from some commentators that this might not be right, and it might be a once-and-for-all  requirement. The others however pointed out that this might mean that if a landlord was a day or two late in serving the certificates they would lose the right to serve a s21 notice for all time – and theoretically the tenant could stay put for ever, provided that they kept paying the rent and keeping the terms of the tenancy. Although this is the normal state of affairs for an Assured Tenancy it wasn’t for an Assured Shorthold Tenancy, and can’t be what the government intended.

Those taking the more relaxed view pointed out that the AST Notices etc Regls say in respect of the gas regulations that

(2) For the purposes of section 21A of the Act, the requirement prescribed by paragraph (1)(b) is limited to the requirement on a landlord to give a copy of the relevant record to the tenant and the 28 day period for compliance with that requirement does not apply.

So all will be well.

Not so, according at any rate to HHJ Jan Luba QC , sitting in the Central London County Court on 2nd February 2018 on a appeal from DJ Bloom in the case of Caridon Property v Mony Schooltz (unreported as yet).  He pointed out that the specific reference in the Gas regulations to 28 days is for checks carried out after the commencement of the tenancy:

(6) Notwithstanding paragraph (5) above, every landlord shall ensure that—

(a)a copy of the record made pursuant to the requirements of paragraph (3)(c) above is given to each existing tenant of premises to which the record relates within 28 days of the date of the check; and

(b)a copy of the last record made in respect of each appliance or flue is given to any new tenant of premises to which the record relates before that tenant occupies those premises save that, in respect of a tenant whose right to occupy those premises is for a period not exceeding 28 days, a copy of the record may instead be prominently displayed within those premises.

So every new tenant has to be given a copy of the latest certifcate before they move in.

A landlord who doesn’t do this is in breach of the requirement and will always be in breach of the requirement and so is for ever barred from serving a s21 notice in respect of that tenancy. HHJ Luba was a prominent housing QC before his appointment and his view is likely to be widely respected, although technically it isn’t binding on anybody outside the Central London County Court.

Now, it is clearly a good idea to keep tenants safe from faulty gas fittings, but this can’t be what the minister meant when he made the regulations in 2015. What is more, the same argument can be applied to the energy performance certificates, because the 2012 regulations say

(2) The relevant person shall make available free of charge a valid energy performance certificate to any prospective buyer or tenant—

(a)at the earliest opportunity; and

(b)in any event no later than whichever is the earlier of—

(i)in the case of a person who requests information about the building, the time at which the relevant person first makes available any information in writing about the building to the person; or

(ii)in the case of a person who makes a request to view the building, the time at which the person views the building.

(5) The relevant person must ensure that a valid energy performance certificate has been given free of charge to the person who ultimately becomes the buyer or tenant.

So if they don’t do this then the landlord is in breach of the 2015 regulations and no s21 notice for him. Note the deadline for the certificate – no later than the first viewing.

Matters may get worse, because the 2015 regulations only apply to tenancies that start on or after 1st October 2015 at present. They will apply to all ASTs from 1st October 2018, so tenancies going back to possibly 1998 may be covered.

It is Superstrike all over again – see my piece here for a reminder of that fiasco.

There are only two good points to cling on to

  • this only applies to ASTs in England, because the 2015 regulations don’t apply to Wales, and Scottish tenancy law is quite different;
  • after the Superstrike fiasco surely the Minister will make some corrective regulations without undue delay.

But who knows. At any rate it will make the housing lists in the busy County Courts even more fraught than usual. Keep your fingers crossed.

[That said, there is a quite respectable case for abolishing s21 notices entirely and requiring landlords to justify regaining possession to a judge or other tribunal. But if this is going to happen it ought to be brought in intentionally, and with warning and safeguards, not by accident like this.]

For more on this see the ever excellent Nearly Legal or Tessa Shepperson’s Landlord Law.

 

New How-To-Rent Guide

The government’s How to Rent Guide has been updated. The changes are trivial – the removal of the references to the London Mayor’s London Rental Standard, which was abolished 6 months ago. But the change is important because an AST landlord has to serve a copy of the Guide on each new tenant, and if they don’t do so then they can’t serve a s21 notice. The new version is available here. It took effect on 17th January 2018, and if you serve the old version (very similar) then it is invalid.

So get it right if you are a landlord, and check your landlord has got it right if you are a tenant (or advising either of them).

The new booklet has to be served on every new tenant, and on every tenant whose fixed-term tenancy converts to a statutary periodical one, or who is granted a fresh fixed-term tanancy, if the booklet has changed in any way since the original copy was supplied. Until the landlord does this they can’t serve a valid s21 notice.

Cynical landlords may also serve the current version on any tenants shortly before they serve a s21 noticeanyway, just to be sure (don’t do it at the same time – that won’t work).

All a load of nonsense really, as there are likely to be more changes in the booklet soon to take account of other changes in housing law, but there we are. Job done.

Does Carillion Ring any Bells?

I’m not going to cover the details of this topical case, because they are fast-moving, not entirely clear yet, and covered in more detail by specialists elsewhere. What matters more is that a distressingly small proportion of comentators, let alone ordinary business-owners, know very much about what happens when a business becomes insolvent, and, more to the point, goes bust.

I am going to look at a few hard truths.

The Background

The brief outline, for the sake of people reading this piece in years to come (if any) is that Carillion was the product of a merger between a number of well-known companies in the construction and facilities-management sector – part of Tarmac Construction, Mowlem, Alfred McAlpine, and part of John Laing, plus some businesses in Canada and elsewhere. It divided its activities between facilities management (eg maintenance of prisons, and railways), large constuction projects (eg hospitals and part of HS2) and mining and mineral extraction abroad. It was the second largest construction company in the UK.

After a number of apparently good years it issued a profits warning in July 2017 recording a downturn in its construction division of some £845m. The share price crashed from 192p to 45p by the end of August, resulting in the loss of 5 directors and frantic searches for refinancing or a buyer. These were scuppered at the end of September when it was revealed that the business had lost £1.15bn in the 6 months to 30th June 2017. Two further profit warnings were issued, and eventually all the options ran out and the company was placed into compulsory liquidation on 15th January 2018. The business owed some £900m, plus a £580m deficit in its pension fund.

Somewhat controvertially the Government, who had a high proportion of Carillion’s business, continued to award it contracts throughout this period, including the amazing award of a substantial share in the HS2 scheme a few days after the first profits warning.

The Outcome

The business apparently had assets worth just £29m when it closed. These would all be charged to its bankers, and although the head office in Wolverhampton may be worth something, the claims for payment on the various construction contracts are likely to be worth very little because of the counterclaims the employers are likely to raise arising out of the additional costs caused by the failure and various “defects in construction” which will come to light over the next few days or weeks.

The facilities management in the state sector – the prisons and the schools – will continue, initially funded by payments to the liquidators to cover the cost, and no doubt in due course the staff will be taken in-house by the clients, or the contracts will be re-let to other contractors, and the staff will, to the most part, be able to follow the work. There will be very little change, although the future cost will be higher because the cause of the failure was taking on contracts at unrealistically low prices in the first place.

The construction in the state sector – building the hospitals for instance – will also continue, after a bit of a hiccup. The hospital will need to be completed and the contract will have to be awarded to another contractor. This may take a bit of time, and will cost more (obviously) but there is every chance that the staff will be taken on by the new contractor, who will suddenly need just the number of workers who are working on the project when it failed, and although there will be some shaking out, and the replacement of key managers, things will continue. And hopefully some lessons will have been learned so that next time the contractor manages to finish the project intact.

The private sector work will be more difficult. Some facilities maintenance work will be taken in-house, with or without the workers, and the construction projects will continue, but after what could be a significant pause. There are likely to be more losses of employment, as new contractors bring in their own teams.

HS2 and the A14 road improvement projects are special cases: they are joint ventures between a number of contractors and they have guaranteed to take over the projects in the event of a failure such as this. Subject to their own financial stability, the survivors are likely to take over the existing staff and continue as before.

But there will be casualties – employees not taken over, pensioners and sub-contractors

The Victims

Although there has been a lot of fuss about them in the media, the employees have various sources of compensation. If they lose their jobs they will get statutary redundancy payments from the government, plus up to 8 weeks’ wages at up to £489/wk, and holiday pay, sick pay and notice pay. It may not be everything but it will be most of it, and few employees will be owed more than a few weeks at this point. And there is a good liklihood that they will be taken on again by whoever takes over the project.

Pensioners also have some protection from the Pension Protection Fund. Those receiving pensions will continue to do so at the same rates, although the rate of increase for future years will be restricted. Those who are below the scheme’s retirement age will get 90% of the pension that they would otherwise get, and subject to a cap (of some £38,500 odd for 2017). Again future rates of increase will be restricted.

It is sub-contractors, suppliers, and their employees, who will take most of the hit. Any company in Carillion’s position will have become very slow in paying their bills and the amounts that are owed will be considerable. I have heard talk that some were operating on payment terms of 120 days, or even 6 months, and for a small business this level of exposure is likely to be fatal. Even if they are taken on by the new contractors they won’t be paid for the work that they have done up until 15th January, and few businesses can afford a hole of this magnitude in their cashflow. They are unlikely to have insurance cover, and factoring won’t save them because the factor will just deduct payments from future invoices until they have been reimbursed.

If you are say an electrical contractor, if you fail then not only do your employees lose their jobs, but your suppliers, your landlords, your contractors and even (God forbid) your lawyers and accountants will miss out. To say nothing of any guarantees put up by directors or shareholders. It will be very grim.

And finally, there are the banks. There is something in the region of £900m owed to RBS, Santander, Barclays and HSBC and a few others. They will get very little of this back, and, although they won’t get much sympathy, that is money that they can’t lend to the rest of us, that can’t be invested in the economy, and we will all suffer as a result. Plus RBS still belongs to the government, and we will lose that way as well.

What can we learn?

Any manner of things:

  • Bigger is not necessarily better.
  • There is no point in bidding for a contract that has such a slim margin that the slightest problem makes it run at a loss.
  • Big construction projects used to lose money for the government because of cost and time over-runs. That is why they were put out to tender. They can still lose money for a private contractor too.
  • It isn’t always best to take the lowest bid – will the bidder still be around when the project is completing?
  • Just because the government continues to employ a company doesn’t mean that it is financially secure – so make your own enquiries.
  • Being a sub-contractor or supplier in these circumstances is risky, and this needs to be factored into your price, or indeed your decision on whether to do the work at all.

I won’t even begin on the activities of the Carillion directors, the payment of dividends when the pension funds were in deficit, the vast salaries and bonuses, and the apparant failure to see the writing on the wall. Or indeed on the government’s involvement in things. These are matters for another day.

And I am not covering the question of whether governments ought to out-source activities in this way. Again, something for another day

It is a sad time for a lot of hard-working people. We all need to learn a few hard truths.