The much anticipated Supreme Court ruling in Bresco Electrical Services Ltd (In Liquidations) v. Michael J Lonsdale (Electrical) Ltd has finally landed and has been met by an immediate barrage of detailed legal analysis and commentary.

While fascinating, this article doesn’t seek to add to those commentaries – rather, it considers what in practice it means for a contractor who may find itself with one its subcontractors going into insolvency. What can it do to better protect is position?

What did Bresco say?

The Corporate Insolvency and Governance Bill (the Bill) is being accelerated through Parliament and will soon become the Corporate Insolvency and Governance Act 2020 (the Act).

The Act, intended to give extra support to companies in financial difficulty, is likely to come into effect during July 2020. An overview of the Act can be found in our previous article.

For leaders of businesses in these extraordinary times, focus shifts to exposure to risk and for many the eligibility to receive government's support, but for others whether there are opportunities to capitalise on. Whilst experience of past economic disruptions provides some insight into what could happen, the current situation is unprecedented and priorities should be considered including the viability of a business.

A framework of changes to insolvency law was first proposed in 2018. Since the coronavirus struck, the government recognises that many businesses that would otherwise be economically viable are experiencing significant and potential terminal trading difficulties due to the COVID-19 pandemic.

We have discussed certain announcements to insolvency law previously, dealing with the relaxation of the law relating to wrongful trading.

One of the big decisions to come out of 2020 was the Supreme Court’s judgment in Bresco Electrical Services Ltd v. Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 in which it was held an insolvent party can adjudicate a dispute.

However, the Supreme Court went on to say that an adjudicator’s decision obtained by an insolvent party may not be enforced because of the insolvency: that was something the Technology and Construction Court has to decide on a case by case basis in enforcement proceedings.

So what happened next?

As England enters its second period of lockdown, commercial landlords are reminded that the temporary measures put in place by the UK Government earlier this year, protecting commercial tenants from eviction and the operation of CRAR and restrictions on the use of certain insolvency processes, are set to continue during the second lockdown and beyond.

The measures are intended to protect business tenants that are unable to pay their rent as a result of the COVID-19 pandemic.

The key measures

Further protection for some businesses but further frustration for others.

Are CVAs on the rise?

News of famous high street names, particularly in retail, and the restaurant sector entering into CVAs is commonplace. Government Insolvency Service figures record 102 CVAs in the first quarter of 2018, an increase of 18%. Whilst the retail sector is undoubtedly feeling the pinch, CVAs are potentially open to any company. The impact on the owners of property occupied by such businesses, can be significant and highly prejudicial.

What exactly are CVAs?

Since the beginning of March, the UK has seen various high profile company failures as a result (at least in part) of COVID-19. Flybe and Laura Ashley may be the first of many businesses unable to react and adapt to the unprecedented challenges.

As a direct result of the restrictions imposed by the Government on us all in response to the COVID-19 pandemic, many companies have suddenly and unexpectedly found themselves in a position where they are unable to pay their suppliers and are therefore insolvent on a cash flow basis.