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Carillion: Crisis deepens after lenders reject rescue plan

The crisis at Carillion looks set to deepen after it emerged that lenders to the Wolverhampton-based construction giant effectively rejected a rescue plan proposed by the debt-laden group.

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Carillion's city centre headquarters on the Ring Road St Marks in Wolverhampton

It is understood that a business plan tabled by the group on Wednesday was knocked back because it failed to present a solid proposition for restructuring the business.

Sources also suggested that the proposal's methodology was found wanting, but talks are ongoing.

It comes as the Government, pension authorities and stakeholders meet on Friday in an attempt to thrash out a rescue package for the firm that would help it avoid collapse.

Carillion, which is struggling under £900 million of debt and a £590 million pension deficit, will use the meeting to discuss plans for securing its long-term future.

Unions have also urged the Government to step in to protect 19,500 UK jobs that are now at risk.

Shadow business secretary Rebecca Long-Bailey said: "The collapse of Carillion could provoke a serious crisis.

"It would have major implications for the outsourced government contracts the company holds, as well as the firm's thousands of workers, those in the supply chain and those who rely on Carillion's pension fund.

"The Government, who despite warnings carried on with its programme of outsourcing public services to this company, must stand ready to bring these contracts back into public control, stabilise the situation and safeguard our public services."

Shares in Carillion were down in morning trading on the London Stock Exchange, as investors weighed the potential outcomes of the company's ongoing crisis.

Talks between the group and lenders HSBC, Barclays, Santander and Royal Bank of Scotland have centred on options to reduce debts, recapitalise or restructure the group's balance sheet.

Carillion is a major supplier to the Government and key contractor in the first phase of building the £56 billion HS2 rail line, but has seen its share price plunge more than 70% in the past six months after making a string of profit warnings and breaching its financial covenants.

Mick Cash, general secretary of the Rail, Maritime and Transport (RMT) union, said its absolute priority at this stage is its members' jobs and their pension rights.

A Government spokeswoman said: "Carillion is a major supplier to the Government, with a number of long-term contracts.

"We are committed to maintaining a healthy supplier market and work closely with our key suppliers.

"The company has kept us informed of the steps it is taking to restructure the business.

"We remain supportive of their ongoing discussions with their stakeholders and await future updates on their progress."

The Pensions Regulator would not comment on whether it was attending specific meetings, but a spokesman said: "We have been and remain closely involved in discussions with Carillion and the trustees of the pension schemes as this situation has unfolded.

"We will not comment further unless it becomes appropriate to do so."

A spokesman from Carillion declined to comment.

Meanwhile Ministers from across the Government have met to discuss the plight of Carillion amid fears it is close to collapse.

Cabinet Office minister David Lidington hosted the summit of senior figures including Business Secretary Greg Clark and Chief Secretary to the Treasury Liz Truss.

Ministers from the Justice, Transport, Culture, Health, Education and Communities departments and ministries were also present, the Financial Times reported.

The Cabinet Office insisted it would not provide a "running commentary" on Carillion.

Carillion has struggled since reporting half-year losses of £1.15 billion.

Its share price plummeted 90 per cent after announcing its first profit warning in July last year.

They also slumped following the company's decision to breach debt covenants along with another profit warning in November, reporting annual profits are forecast to be "materially lower than current market expectations".

Major supplier

A Government spokeswoman said: "Carillion is a major supplier to the Government with a number of long-term contracts.

"We are committed to maintaining a healthy supplier market and work closely with our key suppliers.

"The company has kept us informed of the steps it is taking to restructure the business.

"We remain supportive of their ongoing discussions with their stakeholders and await future updates on their progress."

Meanwhile the union Unite is calling on the Government to consider all possible options including bringing contracts in-house, as doubts continue to grow over the future of troubled construction and outsourcing giant Carillion.

The company employs more than 20,000 workers and there are many more workers reliant on the company’s future in its supply chains.

Unite represents more than 1,000 workers at the company and has many more members in the supply chain.

Aside from its construction business the company has many outsourced public sector contracts in health, education, the prison service and local authorities. It also has contracts in many other industrial sectors.

Consider all options

Unite said that despite the Government having said that it has contingency plans should Carillion collapse it believes it must go further and make clear that it is considering all options. This should include the possibility of bringing contracts back in-house.

Unite also believes that if the Government provides any financial assistance or guarantees loans to Carillion, there must be an assurance that workers in the supply chain are protected. Carillion employs very few construction workers on its new build developments, instead relying on sub-contractors and agency labour.

Unite received assurances from Carillion after the company’s share price plunge last November and was assured there was nothing to be concerned about.

Unite assistant general secretary Gail Cartmail, said: “The Government must consider all options while the future of Carillion hangs in the balance, including bringing contracts back in-house.

“If taxpayer’s money is used to fund corporate mismanagement then the Government should be looking to ensure that public sector contracts are brought back in-house at the earliest possible opportunity.

“If the Government is forced to institute a rescue package they need to also ensure that the supply chain is fully protected as many of these workers lack even the protection of basic employment rights, as they are employed on a bogus self-employed basis, through agencies and via umbrella companies.”