The Technology and Construction Court (TCC) has delivered a significant judgment in Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd (in liquidation) [2018] EWHC 2043 (TCC) where the company seeking to refer a dispute to adjudication was in liquidation. The substance of the dispute related to the contractor's claim for payment allegedly due for work completed, and damages for loss of profits.
The contract and the facts
In the final part of this series, we look at how you can protect your position and be prepared in the event of an impending insolvency.
Thinking ahead
It is always prudent to assess insolvency risk before finalising a contract. The trading history and financial position of a company should be carefully reviewed and a financial risk assessment made at both the outset and during the lifetime of a project. Obtain an up to date set of accounts and a credit report before entering into your contract to enable you to assess the counterparty's financial viability.
In the second of our mini-series on insolvency in construction, we consider what you need to do when you find out that the party you are in contract with has become (or is about to become) insolvent.
Who are you in contract with? Which specific entity?
The first thing you should do in the event of a counterparty's alleged insolvency is check which legal entity you are in a contract with.
This is in order to prevent you from acting too early and committing a repudiatory breach yourself, if you take pre-emptive action against your counterparty.
Insolvency is high on the agenda in the construction industry.
In the first of this mini series, we take a look at the meaning of insolvency and summarise the main insolvency processes that can typically affect parties involved in construction projects. The series will also address contract issues and minimising risk, so keep an eye out for our future articles on this topic.
Owners of small business entities are frequently required to guaranty the debts of such entities. Those business entities might later file for Chapter 11, and may be able to achieve confirmation of a plan to restructure their indebtedness. The question then presented is whether this confirmation event affects the separate guaranty obligations of the owners? The Tenth Circuit Court of Appeals recently explored this issue in In re: Larry
Most loan contracts include provisions allowing the collection of attorneys’ fees in the event the borrower defaults. These attorney fee provisions are routinely enforced in collection suits brought in state courts.
Insiders who loot their corporate entities often dispose of the cash proceeds in transactions with third parties. A recent Seventh Circuit opinion, In re Equipment Acquisition Resources, Inc., 14-2174 (7th Cir. October 13, 2015) (the “EAR Opinion”)addresses a common risk faced by a third party who receives cash from the defrauding insider.
Parties continue to skirmish over the sufficiency of the “cram-down” interest rate required to confirm a Chapter 11 plan over a secured lender’s objection. Currently bankruptcy courts will give some weight to the “prime plus” formula set forth in Till v. SCS Credit Corp., 541 U.S. 465 (2004)(plurality opinion).
On August 4, 2015, we posted: “Equitable Mootness In The Third Circuit: Dead Or Alive?”, which analyzed the Third Circuit’s opinion in In re One2One Communications. The post predicted that Judge Krause’s concurrence would likely result in further opinions on equitable mootness. Less than a month later we have such an opinion. InAurelius v. Tribune, 14-3332 (3d Cir.