The Commonwealth Parliamentary Joint Committee on Corporations and Financial Services Corporate insolvency in Australia was released on 12 July 2023.
The Report states that the construction industry is experiencing one of the highest rates of insolvencies compared to other sectors. The Report cited ASIC data which shows that the number of companies entering external administration has increased relative to the same month in the previous two financial years, with the construction industry being the most highly represented.
July, 2023 For Private Circulation - Educational & Informational Purpose Only A BRIEFING ON LEGAL MATTERS OF CURRENT INTEREST KEY HIGHLIGHTS ⁎ Delhi High Court: An arbitration clause contained in a contract perishes upon its novation. * NCLT Hyderabad rejects resolution plan for being incompliant with Regulation 36B 4(A) of the CIRP Regulations. * Madras High Court rejects enforcement of a foreign arbitration award which was passed without considering FEMA violations and fraud in share valuations. * NCLAT: NCLTs and NCLAT have the power to recall their judgments.
The construction industry trade press frequently writes about administrations in the industry. Whilst the Insolvency Service's figures show that around one construction company went into administration every other day in Q1 2023, significantly higher numbers went quietly into liquidation during the same period.
Modular construction has been heralded for several years now as a construction methodology that saves time, reduces waste and minimises cost. It is therefore unsurprising that modular construction forms part of the various "modern methods of construction" that are now being encouraged by the UK Government. Use of modular construction can range from isolated elements like bathroom pods to where the majority of the building is comprised of modules and is commonly encountered in housing, student accommodation and hotels.
On 17 February 2023, Justice Ball of the New South Wales Supreme Court handed down his decision in Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Construction Pty Ltd; In the matter of Kennedy Civil Contracting Pty Ltd [2023] NSWSC 99.
Facts
With insolvencies expected to increase in the UK’s construction industry this year, as higher interest rates, inflation and an anticipated domestic recession dampen demand for housing and new commercial projects, we are often asked what protections an Employer can put in place in their contract to assist in the event of their contractor going into insolvency.
These issues should be considered at the time of entering into contracts and we have set out below some useful provisions which may assist should an insolvency occur during a project. These are:
A recent decision of the NSW Supreme Court examines whether a 'hopelessly insolvent' subcontractor that executes a holding DOCA to enforce payment claims served on head contractor under the NSW security of payment legislation.
Key takeouts
A large number of UK companies are in significant financial distress at the moment.