Contractor insolvency is continuing to dominate headlines with the recent announcement of the Stewart Milne Group entering administration. By August 2023 as many as 35 construction firms had gone under since June – 29 went under in July alone, six more than in July 2022.
With contractor insolvencies on the rise, we’re providing five essential tips to manage contractor insolvency in construction contracts and to avoid pitfalls. In all circumstances of insolvency, it is important to seek the right legal and commercial advice to avoid making a bad situation worse.
The current economic landscape is presenting challenges for many businesses. Our restructuring and business advisory specialists have provided a list of ten top tips if your business is facing financial distress.
The current economic landscape is presenting challenges for many businesses. Our team at Shepherd and Wedderburn is here to help you navigate those challenges.
Adaptability and resilience have never been more important as many businesses are currently facing ongoing challenges, such as:
Tata Steel Limited (Tata) has been intending to end their British operations for some time. As yet, it has been unable to do so as its subsidiary, Tata Steel UK (TSUK), is the principal employer of one of the UK’s largest defined benefit (DB) schemes. The obligations and liabilities under the British Steel Pension Scheme (BSPS) have been deemed by prospective buyers as too great to take on with the Scheme currently running at a deficit of approximately £700 million.
Introduction
In the current economic climate, landlords are having to deal more frequently with tenants who are in administration. Where the administrators of the tenant are using the property for the purposes of the administration, the moratorium on forfeiture and irritancy proceedings that applies in administrations means that the landlords are unlikely to be able to recover the property in order to relet it.
This recent case in the Employment Appeal Tribunal (EAT) is one of the first to examine how the insolvency provisions in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) should apply and, in particular, the circumstances in which employment liabilities passed under TUPE to the buyer of the assets of an insolvent company.
Facts
This case involved a "pre-pack" administration.
The recent downturn in the economy is undoubtedly having an adverse effect on the cash flows of a large number of businesses in the UK. Businesses are keeping a much closer eye on outgoings and expenses, and may be looking to ease financial pressure by making payments due to creditors as late as possible.
For a business operating from leased premises, quarterly rental payments are likely to be one of the biggest outgoings. The longer the rental payment remains in the tenant's bank account, the more interest they will accrue and the more likely that cash flow issues will be eased.
The Court of Appeal in Haine v Secretary of State for Business Enterprise & Regulatory Reform has held that where redundancies are made in breach of obligations to carry out collective consultation and the employer then goes into insolvency, a protective award subsequently ordered by an employment tribunal is a debt in the liquidation.
Impact on employers
The subject of gratuitous alienations is a problematic area for the property practitioner. Timing is all-important, and often it only becomes an issue for insolvency reasons retrospectively. Put simply of course, in lay terms a gratuitous alienation is no more than a gift, and there is nothing to prevent an owner of property gifting it to someone if he chooses.
In an important decision for commercial property landlords, the High Court in Prudential Assurance Co Ltd and Others v PRG Powerhouse Limited and Others has ruled that a CVA (defined below) cannot operate so as to prevent landlords from enforcing a parent company guarantee. The Court's decision however was reached on the basis that to determine otherwise would have been "unfairly prejudicial" to the landlords.