Almost 60% of Interserve’s shareholders have today voted against a proposed rescue plan to save the company. As a result, Interserve is expected to go into a pre-pack administration later today with Ernst & Young lined up as the administrators. It is being said that this will allow for the sale of the business as a ‘going concern’ without impacting on the continuity of business operations upon the appointment of E&Y.
Whilst this, in all likelihood, means the company will avoid a Carillion-style collapse, what happens next remains to be seen. While media reports suggest service delivery will continue as normal that will depend on what happens next. For those public organisations with outsourced contracts awarded directly to Interserve it would be prudent to review the contract terms to understand what are your rights given that Interserve will still be going into a formal insolvency process.
The contracts are likely to include termination grounds for insolvency including administration and if this is the case, the majority of contracts, especially PFI will have "step-in" or "self-help" provisions which may need to be invoked. It is also necessary to consider the practical and operational consequences and potential liabilities that may be incurred and the contracts may be light on dealing with such matters. Consideration may need to be given to staff, pension issues including any deficits, assets, data, systems, subcontracts and many other issues.
Any change in ownership clause will govern the extent to which the contract can be transferred to another service provider and should also be considered.
It is also necessary to consider the impact of Interserve’s administration on any wider contractual arrangements to which the company is a party.
On the flip side Interserve’s administration may present an appropriate opportunity to consider your outsourcing arrangements as a whole.
In addition, it is unclear at present what the pre-pack will actually mean. We will need to wait and see whether the new lender owners are committed to running an outsourcing company in the longer term. This raises questions about the service which customers will receive.
We are aware that Interserve have sold a number of their shareholdings in project companies but retain some. This may mean a change of control at the top level of the project (or a period of destabilisation while a minority shareholding is sold). Public sector clients should consider their rights carefully and take advice on how to proceed.
Whilst services will need to continue, public bodies need to be conscious of possible liabilities that may be incurred and be ever mindful of their duties and procurement rules.
As one of the leading advisors to public sector organisations regarding the management of PFI contracts and suppliers, as well as construction contracts, we can provide all the legal advice and reassurance you may need. In particular, we have extensive experience of dealing with the consequences of Carillion’s collapse in terms of direct contracts; as subcontractors in PFI and PPP and in current procurements which is relevant notwithstanding Interserve’s intended continued trading.
Click here to read more about our expertise in PPI/PPP Projects.