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A helping hand for insolvent contractors?

2nd July, 2020

A decision in the Supreme Court has restored the right for companies in liquidation to commence adjudication proceedings. In the case of Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd (2020) UKSC 25 the court allowed Bresco’s appeal against the previous decision that the right of an insolvent company to adjudicate was fettered on two main grounds:

That there was an incompatibility between the adjudication process and the Insolvency Rules that meant an adjudicator lacked the jurisdiction to hear the dispute; and
Any adjudication bought by an insolvent company would, in any event, be futile as a favourable decision in their favour, was unlikely to be enforced.

However those arguments have now been dismissed, meaning that, once again, insolvent companies can refer disputes to adjudication in an attempt to recover sums due under construction contracts. Given the current circumstances, and the impact COVID-19 is having on the construction industry, this is going to be welcome news to insolvency practitioners.

However it should be remembered that the dismissal of the “futility argument” simply means the bar to commencing an adjudication has been removed, there is still a chance a successful award will not be subsequently enforced. Is it probable therefore, that insolvent claimants, or those acting on their behalf, will look to provide some form of security to minimise this risk.

From the Employer’s point of view, this decision further highlights the need to ensure that they are familiar with the insolvency provisions in their contracts as they can no longer rely on the Bresco to save them should a dispute arise.

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