Insolvency in construction

Insolvency of the employer, contractor, subcontractor, suppliers or professional advisers on a construction project may compromise the successful completion of the project and the profitability for the parties.

The impact of the insolvency, and the consequent viability of the project, will depend upon the type of insolvency procedure that the defaulting party enters into, the contractual relations between the parties and what security, if any, is in place. There are 4 main types of insolvency proceeding: liquidation; administrationadministrative or non-administrative receivership; and company voluntary arrangements.

The standard forms of building contract generally set out procedures for employers and contractors in the event of either becoming insolvent. Protection from the effects of insolvency can be secured in the form of performance bonds, guarantees and retention funds.

This section is maintained by Jonathan Hutt and Stephen O'Grady of Taylor Wessing LLP.