When a construction company goes bankrupt, it can cause significant disruption to projects, leaving clients, subcontractors, and suppliers in a difficult position. Whether you are a homeowner, developer, or subcontractor, understanding your legal rights and the steps to take in such a scenario is crucial.
At Blackstone Solicitors, we specialise in construction and insolvency law across England and Wales. This article outlines what to do if a construction company becomes insolvent and how to protect your interests.
Free Initial Telephone Discussion
For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of construction law, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
- Understanding Construction Company Insolvency
A construction company may go bankrupt due to financial difficulties, leading to insolvency. There are two main types of insolvency:
- Administration: A licensed insolvency practitioner takes control to attempt to rescue the company or achieve the best outcome for creditors.
- Liquidation: The company ceases trading, and its assets are sold to repay creditors.
If a construction company you are dealing with becomes insolvent, your approach will depend on whether they are in administration or liquidation.
- Check Your Contract and Payment Status
Your first step should be to review your contract. A well-drafted construction contract should outline the steps to take in case of insolvency, including:
- Termination clauses
- Payment schedules
- Retention of title clauses for materials
You should also assess your financial position. Have you made advance payments? Are there outstanding invoices? Understanding where you stand financially will help determine your next steps.
- Determine the Status of the Insolvency
To confirm whether the company is in administration or liquidation, you can check the Companies House register or contact the insolvency practitioner managing the case.
If the company is in administration, there may still be a chance to recover some of your money or resume the project. However, if the company is in liquidation, the focus will shift to securing your financial position and claiming any owed funds.
- Steps for Homeowners and Developers
If you are a homeowner or developer and your construction company goes bankrupt:
- Assess Work Completed and Outstanding
- Conduct a site survey to document completed and unfinished work.
- Obtain an independent expert’s assessment to determine the value of work done and any defects.
- Consider Legal Action for Breach of Contract
- If the company failed to deliver agreed services, you may be able to make a legal claim for breach of contract.
- You can claim damages for incomplete or defective work, though recovery may depend on whether the company has remaining assets.
- Claim Through Insurance or Warranties
- If your contract includes a performance bond, you may be able to claim compensation.
- Check if you have a latent defects warranty, such as NHBC cover for new builds, which may offer protection.
- Some homeowners’ insurance policies include cover for unfinished construction work.
- Find a New Contractor
- If necessary, you may need to hire another contractor to complete the project.
- Ensure you have a clear agreement on completing outstanding work, including timeframes and costs.
- Steps for Subcontractors and Suppliers
If you are a subcontractor or supplier and the main contractor goes bankrupt:
- Check Retention of Title Clauses
- If you have supplied materials but not been paid, a retention of title clause may allow you to reclaim those materials.
- Register as a Creditor
- Contact the appointed insolvency practitioner and register as a creditor.
- Provide evidence of outstanding invoices and contracts.
- Consider Legal Claims
- If you have suffered financial losses due to the company’s failure, you may consider legal action.
- However, claims against insolvent companies can be difficult to enforce if there are limited remaining assets.
- Protect Future Payments
- If you were working under a payment schedule, future payments may not be recoverable.
- Ensure future contracts include protections, such as staged payments and financial guarantees.
- Can You Recover Money from an Insolvent Company?
Recovering funds from an insolvent construction company depends on the company’s remaining assets and your position as a creditor. Creditors are typically ranked in the following order:
- Secured creditors (e.g., banks with mortgages or charges over assets)
- Preferential creditors (e.g., employees owed wages)
- Unsecured creditors (e.g., suppliers, subcontractors, and customers)
Unsecured creditors often receive little or no repayment, as secured and preferential creditors are paid first.
- Preventative Measures for Future Projects
To minimise risk in future construction projects, consider the following:
- Use staged payments: Avoid large upfront payments and pay in instalments based on progress.
- Check financial stability: Conduct credit checks on construction companies before entering contracts.
- Ensure contracts include insolvency clauses: Clearly outline procedures for insolvency and contract termination.
- Obtain performance bonds: These provide financial protection if the contractor fails to complete the work.
- Use project bank accounts: This ensures funds are ring-fenced for specific construction projects, reducing financial exposure.
- How Blackstone Solicitors Can Help
Dealing with a bankrupt construction company can be complex and stressful. At Blackstone Solicitors, we provide legal support for:
- Reviewing and enforcing construction contracts
- Making claims against insolvent companies
- Resolving construction disputes
- Advising on insolvency-related legal issues
Conclusion
If a construction company goes bankrupt, taking swift action is essential to protect your interests. By understanding your rights, reviewing contracts, and seeking legal advice, you can minimise financial losses and find the best path forward.
For expert legal assistance, contact Blackstone Solicitors. Our experienced team can help you navigate construction insolvency issues and ensure you take the right steps to protect your position.
We have a proven track record of helping clients deal with construction law. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of construction law services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/construction-solicitors/
How to Contact Our Construction Solicitors
It is important for you to be well informed about the issues and possible implications of construction law. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Construction solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
Comments are closed.
