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
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.
A large number of UK companies are in significant financial distress at the moment.
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.