Don’t Hang About, Adjudicate! 

In 2021, 2579 construction sector firms across England and Wales became insolvent, which is 19% of all insolvencies. With the furlough assistance long gone and inflation increasing every month, it is very likely that we will see further increases in the number of contractors and developers becoming insolvent. 

As a result, it is becoming more important to chase outstanding debts sooner rather than later.

If a debtor delays payment of sums due under a construction contract and ignores emails and calls, is there a risk that the company is in difficulties? If a company is close to insolvency but still has some assets, it is essential to act quickly. In some instances, correspondence can result in payment, but in our experience, it often goes ignored or, at best, achieves only partial payment of outstanding sums.

There are various options available to pursue outstanding payments, such as issuing court or insolvency proceedings. However, the timescales for these are unlikely to be short. Prior to issuing court proceedings, some form of pre-action correspondence is required. A typical debt claim in the courts which is not defended could take between 12 to 16 weeks. 

Once a judgement is obtained, there are various enforcement methods available such as instructing bailiffs to seize and sell goods owned by the debtor, obtaining a third party debt order or a charging order over property owned by the debtor with a view to the property being sold in order for the debt to be repaid. For insolvency proceedings, a statutory demand has to be issued first, giving 21 days to make payment before the presentation of a winding-up petition. However, winding up proceedings are generally expensive and may not ultimately lead to recovery.

In the construction sector, we have an additional option. The Housing Grants, Construction and Regeneration Act 1996 introduced payment provisions and statutory adjudication to ensure that payments are made promptly throughout the supply chain, and disputes are resolved quickly.

For those that can make use of it, construction adjudication can be a quick process for the recovery of outstanding payments. No pre-action correspondence is required, and the standard timescale for a construction adjudication, even if it is defended, is 28 days, although this can be extended with the consent of the parties. This tight timescale is designed to enable parties to obtain quick and cost-effective results in order to maintain cash flow which is exactly what is required in times like these.  

The adjudicator’s decision is final, and binding, provided it is not challenged by subsequent arbitration or litigation. However, in the meantime, the parties have to comply, and the decision can be enforced. 

It is also worth noting that very few adjudicators’ decisions are re-opened by the courts.

If the debtor refuses to pay following receipt of an adjudicator’s decision, there is also a fast-track process for the enforcement. The enforcement hearing will typically take place within 4 to 6 weeks. 

As a result, if it is available, construction adjudication can often be the quickest way to get an enforceable Judgment from the courts.

At Myerson,  our construction solicitors can provide guidance and advice on all aspects of contentious construction matters.