A recent TCC decision has concluded that the contractor insolvency provisions of the JCT form continue to apply after a termination by the contractor for repudiation. This conclusion may give rise to surprising results and potentially allow an employer to claim from the contractor additional amounts incurred in completing the works with a third party even after termination for the employer’s own default and/or repudiation.

Since the case of Perar BV v. General Surety and Guarantee in 1994, there has been some confusion and misunderstanding as to the implications of this case and whether insolvency amounts to a breach of contract, or more importantly, if it needs to be, when claiming on a performance bond.

This was recently discussed in the case of Ziggurat (Claremont Place) LLP v HCC International Company Plc just before Christmas.

Background

It is fair to say that the insolvency of Carillion has sent shockwaves through the construction industry. While this may be the catalyst for change, insolvency has unfortunately been a risk which has been realised all too often. Looking at the current position, we set out the top ten issues that employers, professionals and the supply chain should consider in the event of main contractor insolvency.

Summary: This Expert Insight looks at the case of Ziggurat (Claremont Place) v HCC International Insurance Company PLC [2017] and considers the implications of the case for the surety industry generally, particularly in the context of construction insolvency.

Carillion is, or was, the second largest construction firm in the UK. It’s collapse on Monday 15 January 2017 was confirmed when the High Court ordered the compulsory liquidation of the various companies in the group. It employed 20,000 people and the projects of the business included the HS2 rail project, Battersea Power Station redevelopment, military contracts and the maintenance of schools, prisons and hospitals. So, what happens now?

On 15 January 2018 Carillion PLC and a number of its subsidiary companies (Carillion) went into liquidation, with the High Court appointing the Official Receiver as liquidator and six partners of PWC as special managers.

Those clients who have contracts with Carillion or who are owed money may find the following guidance useful:

Following recent media reports, with effect from Monday 15 January 2018 the Official Receiver has been appointed liquidator of a number of Carillion Group companies (Carillion Plc, Carillion Construction Limited, Carillion Services Limited, Planned Maintenance Engineering Limited, Carillion Integrated Services Limited and Carillion Services 2006 Limited). The Official Receiver will be supported by a number of Special Managers from PwC.

On 15 January 2018, Carillion, the UK’s second-largest builder and one of the Government’s largest contractors, was placed into compulsory liquidation and the Official Receiver was appointed as liquidator, with Michael John Andrew Jervis, David James Kelly, David Christian Chubb, Peter Dickens, David Matthew Hammond and Russell Downs of PwC being appointed as special managers to assist in the wind down of the business and realisation of its assets.

Construction giant Carillion is headed into liquidation, putting billions of pounds worth of contracts into potential chaos.

The fallout from the failure of the UK’s second largest construction firm will affect many and generate many column inches asking the fundamental question: how could it happen? The truth is, the construction sector remains extremely difficult, and a large failure of this type had been expected by industry watchers for some time.

Carillion’s entry in to liquidation is likely to have ramifications for all the actors in the construction industry for some time to come. The most immediate impact will concern payments. The aim of the Housing Grants, Construction and Regeneration Act 1996 (amended by the Local Democracy Economic Development and Construction Act 2009 - generically, ‘the Act’) is to ensure that cash keeps moving in the construction industry, but what happens when a main contractor becomes insolvent?