The final report of the independent inquiry into insolvency in the NSW construction industry was released on Tuesday for public comment.

The report is lengthy and addresses a wide variety of potential causes of contractor insolvency. It makes 44 recommendations, including reforms of the NSW construction industry to reduce both the incidence of contractor insolvency and its impact on other participants in the industry.

A particular focus of the inquiry will be the consequences of such insolvencies for sub-contractors.

In the wake of a recent spate of contractors becoming insolvent, the NSW Government has announced an inquiry into insolvency in the construction industry and is seeking submissions from interested parties. Submissions to the inquiry are due by 14 September 2012.

Last year we reported on a decision of the Scottish Court of Session which suggested that greater leniency may apply to the interpretation of performance bonds in Scotland than in England (see our earlier Law-Now here). A further decision from the Court of Session issued last month would appear to support this trend.

Fife Council v Royal & Sun Alliance Insurance plc

A recent Scottish Inner House decision provides an overview of the approach to be taken in Scotland to interpreting performance bonds. The decision notes that the degree of compliance required when making a call may be strict, or not so strict, depending on the construction of the bond. The court’s decision also refers to the commercial purpose of the bond being key and may suggest that a more lenient approach to performance bonds is to apply in Scotland.

A recent Court of Appeal decision has criticised obiter comments made by the Supreme Court in Bresco v Lonsdale to the effect that adjudication decisions in favour of companies in liquidation could in certain circumstances, and with appropriate safeguards, be enforced by way of summary judgment. The Court of Appeal has indicated that such an approach would be at odds with the mandatory right of set-off arising under the Insolvency Rules. The Court of Appeal’s comments in this respect are themselves obiter and will give rise to uncertainty in this area of the law.

A Supreme Court judgment issued yesterday has overturned a Court of Appeal decision heavily limiting the ability of insolvency practitioners to commence and enforce adjudication proceedings against their creditors. The court’s decision allows much greater flexibility in the use of adjudication for the administration of construction insolvencies, however some uncertainty remains over the basis on which decisions obtained in such adjudications will be permitted to be enforced against creditors.

A recent TCC decision has provided further guidance on a liquidator’s options when seeking payments owed to insolvent companies through adjudication and the interplay with the Insolvency Rules. The decision establishes an exception to the general principle that such adjudication proceedings will not be enforced (and are liable to be injuncted) where the responding party has a cross-claim.

A Court of Appeal decision last week has broadly upheld previous TCC guidance as to the ability of companies in liquidation or those subject to CVAs to commence and enforce adjudication proceedings against their creditors. Although theoretically possible, adjudication proceedings commenced by companies in liquidation are now liable to be restrained by a court injunction.  Adjudications by companies subject to a CVA are more likely to be appropriate and, depending on the circumstances, may be enforced without a stay of execution.

Insolvency set-off: a recap

A recent TCC decision highlights the dangers of withholding payment against contractors with a view to pushing them into insolvency. The court allowed the recovery of insolvency professional fees as well as a substantial sum reflecting a reduced settlement reached with a third party on a separate project. The court’s decision has ramifications for any party seeking to withhold large payments under a construction contract against a party who is likely to suffer serious cash-flow pressure as a result.

A recent TCC decision has ruled that adjudication proceedings cannot be brought by companies in liquidation in relation to financial claims under a construction contract. The decision will have considerable ramifications for the practical management of liquidations for companies with exposure to construction contracts. The decision would appear to run contrary to current liquidator practice, both as to the use of adjudication proceedings in liquidations and as to the assignment of claims to third parties, but essentially only confirms the mandatory nature of insolvency set-off.