The recent failures of Silicon Valley Bank (“SVB”) and Signature Bank have dominated news headlines for the last several days. The seemingly abrupt failure of two large financial institutions and the subsequent revelations that some businesses could lose a substantial amount of deposits have a lot of business owners concerned about the security of their funds. However, recent actions by the Federal Reserve Board (“FRB”) and United States Treasury Department have substantially reduced the risk that depositors will lose deposits.

Last year saw the construction industry face significant challenges, insolvency levels were up with over 5,000 company failures and nearly 23,000 companies in distress by the last quarter.

Construction businesses in the North-East had the second highest sector insolvency rates, with an estimated 540 companies suffering from distress in the last quarter of 2022 –  the highest of any sector.

This distress has now come to fruition with the recent insolvencies of two of the North East’s largest main contractors, Metnor Construction and Tolent Construction.

Following the important decision in Martlet Homes Ltd v Mulalley & Co Ltd [2022] (see our summary here), LDC (Portfolio One) Ltd v George Downing Construction

A Win for Subcontractors and Suppliers

When a construction company goes broke, the subcontractors and suppliers often receive letters from the liquidator demanding repayment of so-called ‘unfair preferences’.

When an ongoing business relationship has existed between the creditor company and the company in liquidation, liquidators have historically worked out the amount of the ‘unfair preference’ on a ‘running account’ basis by reference to the so-called ‘peak indebtedness principle’. For example, if the following transactions took place:

Key Takeaways

Spotting the warning signs of distress in your construction supply chain and taking early action can significantly reduce the impact on your projects

While insolvency events may appear to arise suddenly, there are often warning signs or "red flags" of distress well in advance. While these do not necessarily demonstrate actual insolvency, they can indicate liquidity and solvency risks to the supply chain.

In recent years, Israel’s real estate and infrastructure market has experienced many cases of the corporate collapse of performance contractors. Just recently, a court ordered a temporary stay of proceedings against the construction company Tal Bar Construction and Supervision. The recent interest rate hike has also made headlines, including that it might hit performance contractors particularly hard. The collapse of a construction company affects not only the company and its creditors but also the project’s developer.

The First-tier Tribunal (FTT) has made what is understood to be the first Remediation Contribution Order under the Building Safety Act 2022 (BSA) in connection with the remediation of building safety defects at a high-rise residential block at 9 Sutton Court Road, in London.

Introduction

There is a worrying trend in the construction industry: contractor insolvencies are on the rise.

According to a release from The Insolvency Service, the construction industry accounted for 3,213 insolvency cases in the 12 months leading up to April 2022. This equates to almost a fifth (19%) of the overall cases of insolvency and, more worryingly, these numbers are still growing. These insolvencies have occurred throughout the market but have particularly affected smaller and mid-tier contractors.

In Re Nicolas Critini Pty Ltd (in Liquidation) [2022] NSWSC 1149, the New South Wales Supreme Court confirmed that a statutory debt for a disputed progress claim does not crystalise under SOPA’s^[1] distinct 'pay now, argue later' process until an adjudication determination is delivered.