A major Construction firm with multiple contracts across the globe has collapsed. Carillion, which employs 43,000 people worldwide reported that the talks it was having with stakeholders fell apart, and it has no other choice than to close. Carillion has roughly 19,000 employees in the UK and 10,000 in Canada. 3 quarters of its revenue come from the UK, where it holds major building contracts with the government. Back in late 2007, shares of Carillion were worth $6.30, but last week that dropped to about $0.17.
For a while now, the company had sent out warning signs of its impending fall. Last year it had warned its shareholders that it was short on cash, and that it would begin selling off assets to help pay off debt and be more liquid. This was also reported to the UK Government, but even so the UK government continued to award building contracts to Carillion. However, new contracts where structured in a way so Carillion would not be the only company working on them, and if Carillion could not continue the other construction firms were in place to pick up the slack. The fall of Carillion will have wide reaching effects. A major construction firm has large vendors it deals with, and long-term contracts that it will not be able to fulfill. The fact of the matter is that it won’t just be the 43,000 people employed by Carillion that will lose their jobs, many more who work with other companies that work in tandem with Carillion will be at risk as well. The British Government is at fault as well here, it continued to award the failing firm contracts knowing that it was at risk. Now it will have to hire new firms to complete the work Carillion can’t at the expense of tax payers. Carillion took on too much debt over the years to finance its growth, however it couldn’t keep up with the loan payments and is now in crisis. Debt is not necessarily a bad thing, and it’s essential for businesses that want to grow. Debt can get a business the necessary funding it needs, while also giving tax benefits. But the problem is that many companies continue to take on debt, even as their business begins to struggle and in time go under. It happens with small businesses, and just like with Carillion, it also happens with Multi-national corporations. Business must only take on the amount of debt they can payoff, or like Carillion, they will collapse