Insolvency in construction: What does this mean for your contract?

Definition of insolvency

A company:

• entering into administration;
• appointing an administrative receiver or a receiver or manager;
• passing a resolution for voluntary winding-up; or
• becoming the subject of a winding-up order

An individual or partnership:

• becoming the subject of a winding-up order;
• sequestration of the estate or the grant of a trust deed for creditors;
• entering into an individual voluntary arrangement with creditors.

Employer action (for contractor's insolvency)

The employer can terminate the contractor's employment at any time.

The contractor's works obligations are suspended from the date of insolvency. Whether or not termination occurs, payment stops until after completion of the works and making good defects.

If the employer terminates, it may take possession of the site and employ others to carry out and complete the works. The contractor cannot hinder or delay the taking of these measures.

The employer will have to pay the contractor the balance due, if any, upon completion of the works by others.

Contractor action (for employer's insolvency)

The contractor can, by notice to the employer, terminate the contractor's employment.

Whether or not the contractor terminates, as from the date the employer becomes insolvent, its obligations under the contract to carry out and complete the works are suspended.

The contractor should prepare an account and provide it to the employer within two months. The employer must pay the contractor any amount due within 28 days of submission of the account.

Definition of insolvency

A company:

• entering into administration;
• appointing an administrative receiver or a receiver or manager;
• passing a resolution for voluntary winding-up; or
• becoming the subject of a winding-up order

An individual or partnership:

• becoming the subject of a winding-up order;
• sequestration of the estate or the grant of a trust deed for creditors;
• entering into an individual voluntary arrangement with creditors.

Employer action (for contractor's insolvency)

The employer can terminate the contractor's employment at any time.

The contractor's works obligations are suspended from the date of insolvency. Whether or not termination occurs, payment stops.

If the employer terminates, it may take possession of the site and employ others to carry out and complete the works. The employer will have to pay the contractor the balance due, if any, upon completion of the works by others.

Contractor action (for employer's insolvency)

The contractor can, by notice to the employer, terminate the contractor's employment.

Whether or not the contractor terminates, as from the date the employer becomes insolvent, its obligations under the contract to carry out and complete the works are suspended.

The contractor should prepare an account and provide it to the employer within two months. The employer must pay the contractor any amount due within 28 days of submission of the account.

Definition of insolvency

An individual who has:

• presented their petition for bankruptcy (R1);
• had a bankruptcy order made against them (R2);
• had a receiver appointed over their assets (R3);
• made an arrangement with their creditors (R4).

A company or partnership that has:

• had a winding-up order made against it (R5);
• had a provisional liquidator appointed to it (R6);
• passed a resolution for winding-up (other than in order to amalgamate or reconstruct) (R7);
• had an administration order made against it (R8);
• had a receiver, receiver and manager, or administrative receiver appointed over the whole or substantial part of its undertaking or assets (R9); or
• made an arrangement with its creditors (R10).

Employer action (for contractor's insolvency)

The employer may terminate for any reason under NEC3.

If the contractor is insolvent the employer may terminate and pay a third party to complete the works. It can also instruct the contractor to leave the site, assign the benefit of subcontracts and use any equipment to which he has title that remains on site.

Contractor action (for employer's insolvency)

In the situation of contractor termination, the employer's entitlement to complete the works remains.

The employer is only entitled to use the plant and materials to which it has title. The contractor removes any plant and materials to which it may still have title.

Definition of insolvency

An individual who has:

• presented his petition for bankruptcy (R1);
• had a bankruptcy order made against him (R2);
• had a receiver appointed over his assets (R3);
• made an arrangement with his creditors (R4).

A company or partnership that has:

• had a winding-up order made against it (R5);
• had a provisional liquidator appointed to it (R6);
• passed a resolution for winding-up (other than in order to amalgamate or reconstruct) (R7);
• had an administration order made against it (R8);
• had a receiver, receiver and manager, or administrative receiver appointed over the whole or substantial part of its undertaking or assets (R9); or
• made an arrangement with its creditors (R10).

Employer action (for contractor's insolvency)

The employer may only terminate under NEC4 if the relevant secondary option has been chosen.

If the contractor is insolvent the employer may terminate and pay a third party to complete the works. It can also instruct the contractor to leave the site, assign the benefit of subcontracts and use any equipment that remains on site.

Contractor action (for employer's insolvency)

In the situation of contractor termination, the employer's entitlement to complete the works remains.

The employer is only entitled to use the plant and materials to which it has title. The contractor removes any plant and materials to which it may still have title.

Definition of insolvency

A party becomes bankrupt or insolvent, goes into liquidation, administration, reorganisation, winding-up or dissolution; becomes subject to the appointment of a liquidator, receiver, administrator, manager or trustee; enters into a composition or arrangement with the Contractor's creditors; or if any act is done or event occurs which (under applicable Laws) is analogous to or has a similar effect to any of these acts or events.

Employer action (for contractor's insolvency)

Immediate termination of contractor's employment.

The contractor is required to leave the site and comply with any reasonable instructions given by the Employer to assign the benefit of subcontracts and protect the site.

The employer may engage a third party to complete the works.

The Engineer must determine the proper value of the works at the date of termination.

The employer may withhold any further payments until all costs and losses to complete the works are established. The employer may then recover these from the contractor (or lodge a proof of debt for the same).

Contractor action (for employer's insolvency)

The contractor shall promptly cease all further work, except for such work as may have been instructed by the Engineer for the protection of life or property or for the safety of the works.

The contractor should also hand over any plant, materials and other work for which he has received payment.

Definition of insolvency

A party becomes bankrupt or insolvent, goes into liquidation, administration, reorganisation, winding-up or dissolution; becomes subject to the appointment of a liquidator, receiver, administrator, manager or trustee; enters into a composition or arrangement with the Contractor's creditors; or if any act is done or event occurs which (under applicable Laws) is analogous to or has a similar effect to any of these acts or events.

Employer action (for contractor's insolvency)

Immediate termination of contractor's employment.

The contractor is required to leave the site and comply with any reasonable instructions given by the Employer to assign the benefit of subcontracts and protect the site.

The employer may engage a third party to complete works.

The employer's representative must determine the proper value of the works at the date of termination.

The employer may withhold any further payments until all costs and losses to complete the works are established. The employer may then recover these from the contractor (or lodge a proof of debt for the same).

Contractor action (for employer's insolvency)

The contractor shall promptly cease all further work, except for such work as may have been instructed by the employer for the protection of life or property or for the safety of the works.

The contractor should also hand over any plant, materials and other work for which he has received payment.