Craig calls for changes to the Insolvency Act 1986 in the wake of Carillion’s insolvency

Craig Mackinlay MP has called on the Government to amend the Insolvency Act 1986 in the wake of Carillion's failure.

In a Parliamentary Question last week to the Minister at the Cabinet Office, Rt Hon David Lidington MP, Mr Mackinlay raised concerns for subcontractors and suppliers further down the supply chain that are now likely to be left unpaid by Carillion.

As a result of this “domino effect”, the South Thanet MP asked whether now is the time to change insolvency rules to introduce an assumed Romalpa clause or similar, so that in the instance of the failure of a primary contractor such as Carillion, payments received post-insolvency from the head client of outstanding contract payments and invoices which include recognisable goods and services are directed to the relevant companies down the supply chain by the receiver, rather than the primary client making post-insolvency payments into a likely black hole.

This is not the first time Mr Mackinlay has called on the Government to give some consideration to a technical change to Insolvency Act 1986 rules, having first argued the case for this in a Westminster Hall Debate on Small Shops Regulation on 2 November 2016.

The MP made the call as the Business Secretary, Greg Clark MP, chaired the first meeting of a taskforce convened to support small businesses and workers affected by Carillion’s insolvency. 

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Craig Mackinlay MP, said:

“As a Chartered Accountant, still nominally in practice, clients that I have acted for and local businesses who have highlighted their issues as part of my constituency work have commonly been left unpaid upon a corporate failure in the supply chain above them. The typical situation is when there is a head client, with a primary contractor conducting mixed work. Beneath the primary contractor, particularly in construction projects, there can be many sub-contractors and suppliers reliant on the primary contractor for their payment based upon stage payments passing down from the head client to the primary contractor.

“In this scenario, upon the appointment of an Insolvency Practitioner (or in Carillion’s case the Official Receiver), the head client is called upon to pay any final stage payments and invoices outstanding into the black hole of the insolvency. After fees and payment of preferential creditors, the contractors and suppliers down the chain will typically receive nothing. These smaller entities are the typical small to medium-sized businesses and sole traders, the backbone of entrepreneurial Britain.

“Other commonplace scenarios are when a supplier of physical goods faces the insolvency of their customer, often with their goods still in situ within a depot, unpaid for and unsold. Again the Insolvency Practitioner takes charge, often implementing a fire-sale of stock and assets. A barrier to this is an appropriate ‘Romalpa’ or reservation of title clause in the contract for sale, so that the goods, if unpaid remain within the title of the seller. In such circumstances the supplier can recover the goods. Unfortunately the situation is rare, the clauses often contested by the Insolvency Practitioner usually leaving the supplier without their goods and without payout.

“The change that I propose would mean an assumed reservation of title clause in the case of goods and in the case of a more complex supply chain, the sub-contractor or supplier would receive payout direct from the head client for identifiable work bypassing the insolvency of the primary contractor.”