The collapse of Carillion

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The collapse of Carillion was unexpected to many stakeholders, including the shareholders, creditors, and the public. Many people had not noticed the mounting debt levels and the falling liquidity position of the company with a specific focus on the cash ratio. It was a combination of these factors that resulted in the collapse and the subsequent liquidation of Carillion in 2018 (Detrick 2018). The stakeholders who had invested into it were affected significantly since the firm had to terminate its operations after losing the invested capital.

When assessing the implication of the collapse of a company, it is important to consider the most affected stakeholder, the shareholders. Carillion was trading successfully, at a rate of 317.50 GBX on December 23, 2015 (BBC 2018). This was before the financial problems of the company were revealed publicly. The major financial loss for the shareholders occurred when the company gave a profit warning on 10th of July in 2017, and it was at this time when the prices collapsed from nearly 200 GBX to slightly above 50 GBX. The firm became suspended then and its price has fallen to less than 14.20 GBX as of January 2018 (BBC 2018). Within a span of only three years, the value of the company has been reduced tremendously. The company is suspended from trading and it is going through the liquidation process, but the losses that the firm’s shareholders are incurring continue to grow.

(BBC, 2018)

The second major stakeholder affected by the collapse of Carillion entails creditors of the company. Research indicates that the company’s debt to total capital ratio has risen from 67.03% in 2015 to 172.88% in 2016 (Financial Times 2018). At the time of the collapse, the firm held more than £1.5 billion in debt. At the time of liquidation, the company's total assets were much lesser than its total liabilities. To date, it is clear that the company's creditors cannot recover their liabilities from the assets of the company. It also means that the shareholders will lose all the capital invested in the firm. These issues have become a major problem for the government, especially since the government was a major client of the company.

The customers were the other stakeholders hugely affected by the collapse of Carillion. From the delay of projects in the years following 2015 to complete work stoppages on many of the construction projects, numerous clients of the company were caught off-guard by its collapse. This resulted in financial losses for the clients, especially considering their need to hire new contractors (Financial Times 2018). Many clients have not had the ability to continue their projects as they were halted by the collapse of Carillion. These aspects are some of the reasons why an investigation of the activities of the company was ordered by the UK government.

Overall, the collapse of Carillion has significantly affected all the citizens in the UK. Due to taxation, the citizens face a bill in excess of £150 million (BBC 2018). The amount of bill is explained by the fact that the government traded with the company and the delayed payments by the government were a part of the reason why Carillion might have collapsed. As a consequence, some of the resources that would have been directed to develop the projects had to be directed to Carillion; however, there are no notable benefits from the utilisation of such resources.

Therefore, the collapse of Carillion has had a considerable negative impact on different stakeholders. The shareholders and creditors were directly affected by the loss of the investments they made into the company. Clients and customers lost resources since the company could not deliver their projects while the taxpayers are forced to pay extra money to the company after it collapsed, which presents an opportunity cost for the shareholders.