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Workers at Carillion stand in an office after the company went into liquidation, in Wolverhampton, Britain, Jan. 15, 2018.


Like so many fallen companies, it was debt that sank Carillion PLC, the giant British construction concern that employs 6,000 Canadians.

From the first half of 2016 to the same period a year later, the company's net debt – that is, total debt minus cash available – nearly doubled to £571-million ($978-million). Then in the six months from July, 2017, to this January, management went from admitting "serious financial problems" to putting the company into liquidation.

As of Monday, Carillion had roughly £900-million in net debt and a £587-million pension deficit. The future for the Canadian business – which accounts for 11 per cent of the company's total revenue and does everything from camp management and catering for energy companies to facilities management for hospitals – is unknown.

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The woes were thrust into the open last summer when the company publicly acknowledged its financial struggles had become a major threat to its future, and also fired its chief executive officer and suspended its dividend for a year.

By September, there seemed to be a plan. As part of a strategic review, Carillion took provisions totalling more than £1-billion, but the company said it was still meeting its debt covenants. Management also said there was some wiggle room because Carillion was looking to sell its Canadian arm, as well as its health-care facilities management business in Britain, which would deliver extra cash to shore up its finances.

By the end of November, everything seemed to be falling apart. The planned sale of the Canadian business, something management had called a "key part" of its recovery plan, was going nowhere and the board of directors warned investors there might be a balance-sheet restructuring, as well as a covenant breach. In other words, the debt spiral was getting worse.

On Monday, the company was finally put into liquidation, creating a political firestorm in Britain because Carillion has a plethora of government contracts.

The mess is partly tied to Carillion's complicated structure – something the board has admitted. "Without a doubt, Carillion is a complex business, and there is no such thing as a quick fix," director Keith Cochrane said candidly on a conference call in September.

Because Carillion was in so many different businesses and was spread across so many markets, there were "too many layers of management [that] resulted in a complete lack of line of sight accountability," he added. "We were hampered by insufficient transparency and overinflated group overhead and a business with no sense of what to prioritize and how."

"Carillion took on too many unprofitable contracts. In too many cases, we were building a Rolls-Royce, but only getting paid to build a Mini," Mr. Cochrane said.

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Carillion has been growing its support services business and these contracts require large cash outlays upfront. Management has also admitted to bidding on contracts that didn't make proper financial assumptions.

The construction division, meanwhile, struggled with four major projects and also didn't properly monitor its accounts receivables, so money wasn't being collected – hence the need for more debt.

To illustrate the construction woes, Carillion announced in the fall that, on one large project, the project director didn't arrive until after a plan was already put in place, and then decided "to remobilize in his preferred style, incurring significant extra cost."

"With a balance sheet that was already stretched, you can understand how our net debt challenge was compounded by rapid growth in support services and the impact of four challenging construction contracts all coming at the same time. Arguably, a perfect storm," Mr. Cochrane said in September.

After firing the chief executive in July, the board tried to keep the company afloat by announcing plans to radically slash costs – including in the executive ranks – and by exiting expensive projects. In the end, they didn't have enough time.

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