Contractor Insolvency

Given small profit margins, extended supply chains, the sometimes draconian effect of the statutory payment regime under the Housing Grants, Construction & Regeneration Act 1996, the poor payment practices of some employers and main contractors, and difficult financial climates in recent years, contractor [in]solvency is a subject that arises with some frequency, both from the perspective of the contractor itself and from that of the party or parties it is in contract with. Specifically: what is the risk of insolvency and what happens if insolvency actually occurs?

Those questions in turn provoke questions such as the following:

At procurement stage

Is the contractor a sensible (i.e. financially strong) contracting party for me? Do I need bonds or guarantees to protect me? How can insurance protect me? What termination rights do I have in the event of insolvency?

At works stage

If the works are incomplete at insolvency stage, what rights do I have over those works and unused materials? Can and how quickly can I bring in a replacement contractor? What about liability for defects in works that were carried out by an insolvent contractor?

At dispute stage

What value to me is an insolvent defendant: none? Can an insolvent claimant continue with proceedings against me? If I lose an adjudication and have to pay out, will the successful contractor still be trading by the time I hopefully get a Decision in a second dispute going back the other way and allow me to recover my money? If not, can I resist payment in the first adjudication?

Wrongful trading under the Insolvency Act is another area that we get asked about: i.e. have Directors continued to trade when there was no reasonable prospect of the company avoiding insolvency?

Construction law and insolvency law are often bedfellows and we have great experience in this area.

24 Greville Street, London, EC1N 8SS

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