Contractor insolvency: three things clients should be aware of

17 May 2021

Last week, we ran a webinar about contractor insolvency. The discussion was wide-ranging, including the (a) warning signs to look out for; (b) steps to take in the immediate aftermath of a contractor becoming insolvent; and (c) what to do in the medium and longer term and dealing with disputes. 

We will shortly be publishing a note summarising the key points employers and those administering contracts on their behalf should consider.

In the meantime, there are three key take away points, which we flagged at the start of the webinar as things to remember above anything else:

  1. Insolvent companies can bring adjudication proceedings to recover sums owed to them under construction contracts. This was recently made clear by the Supreme Court in the case of Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25;
  2. A number of companies have been set up whose business model is to take on claims for insolvent construction companies on a no-win no-fee basis and pursue them by, amongst other things, adjudication; and
  3. It is, therefore, vital that in the lead-up to and during an insolvency, all contractual mechanisms are carefully followed in order to either avoid a claim or give employers the best chance of successfully defending a claim. In short, be familiar with the contract requirements and mechanisms (particularly in relation to notices and payment) and follow them to the letter. 

Employers always need to be alive to the risk of, and carefully and proactively manage, contractor claims – regardless of the solvency of the contractor.