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The importance of stakeholder consultation - Toys R Us and Carillion PLC - news article image

The importance of stakeholder consultation - Toys R Us and Carillion PLC

17 Jan 2018

3 minute read

As Insolvency Practitioners, we deal with many competing interests in an insolvent situation due to the numerous stakeholders often involved. It is important to ascertain who the most important and powerful creditors are at an early stage, to ensure that they are consulted with and ultimately are on board with any rescue plans. 

Key stakeholders usually include but are not exclusive to:

  • Major customers 
  • The supply chain 
  • HMRC 
  • Lenders
  • Trade unions 
  • Pension regulators 

Trade unions can be a powerful force and will not hesitate to use the media to voice their concerns, as evidenced by the recent collapse of British construction and services company, Carillion PLC. The country’s largest trade union, Unite, has called for ‘urgent reassurances’ with regards to jobs, pay and pensions. They have also called for ‘a full and rapid enquiry’ and have embraced social media, alongside more traditional mediums, to stress their concerns. Meanwhile, the Labour Party continue to campaign against privatisation. 

In the case of Toys R Us, the Pension Protection Fund (PPF) was a key stakeholder. The PPF was established to compensate members of defined benefit pension schemes in the event of insolvency, albeit at a reduced level. The fund is subsidised by levies on all eligible schemes.

The PPF opposed the initial Company Voluntary Arrangement (CVA) on the basis that there were no assurances that Toys R Us had capacity to honour future pension payments from a scheme which had a deficit of more than £25million. Their concern was that the business could find itself in a worse position should the rescue plan not work, which would result in the fund ultimately having to pay out more than if the business was just allowed to fail. 

Carillion PLC are now in compulsory liquidation. The Official Receiver has been appointed as liquidator with PwC appointed as special managers. The PPF are yet to be as vocal as in the case of Toys R Us but it is reported that Carillion PLC have a pension deficit of £800million which will fall to the PPF in the first instance and they will have to make a claim against the company along with other creditors. 

The PPF stood their ground against Toys R Us, who are one of the largest retailers in the UK. Last minute negotiations resulted in a £9.8milliom injection into the pension scheme, which avoided collapse. Toys R Us will now trade under its CVA, potentially saving up to 2,000 jobs. 

We have dealt with the PPF on a number of occasions and found them to be a hard taskmaster but fair and open. They are often the largest creditor and therefore expect to be properly consulted with and certainly not dictated to. 

Whilst we do not have full knowledge of the exact nature of the consultations that took place within either business, it seems evident that early on-boarding of Unite and the PPF as key stakeholders did not take place. 

The failure of Carillion PLC will have a serious impact on employees and its supply chain, putting the financial future of many people and smaller businesses at risk. If you know of anyone who may be impacted and need advice on their position, we can offer a free initial confidential consultation with one of our experienced Insolvency and Advisory Team.

How Shaw Gibbs can help businesses in financial distress 

Shaw Gibbs now has three Insolvency Practitioners and a supporting experienced team in position to help in situations that involve insolvency or corporate recovery. We also have the back-up of one of the largest accountancy and business advisory practices in the Thames Valley and London to help advise businesses on a whole host of matters including; tax planning, accounts and audit, corporate finance, and financial planning - all of which were utilised at some point in the above cases. Furthermore, Shaw Gibbs' membership of the DFK International Network provides support in cross border situations.

The importance of stakeholder consultation - Toys R Us and Carillion PLC - news article image


Hayley Simmons

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