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Winding Up Petitions and Construction Debts

It is not uncommon for parties to a construction dispute to become embroiled in a dispute as to final accounts and payments due.   It has also been known by some parties to try and assert their position and put pressure on a party by way of insolvency proceedings as opposed to the more evidence heavy adjudication process and/or court proceedings.

In the recent case of Breyer Group plc v RBK Engineering Ltd [2017] EWHC 1206 (Ch)  The court struck out a winding-up petition brought against a contractor by its sub-contractor. In the court’s view, the contractor was not unable to pay its debts and it had an arguable defence to the sums claimed as well as cross-claims, which should be resolved by adjudication or ordinary court proceedings.

While statutory demands and winding-up petitions can be used to try and secure payment of a debt owed in a construction project, they are inappropriate (and may result in a costs liability) where the sum claimed is disputed on substantial grounds or there is a serious and genuine cross-claim.

In the matter before the court, the contractor had not paid the sums claimed by the sub-contractor as it had various heads of defence and cross-claims relating to the terms on which the work had been undertaken, the quality of work and the validity of certain certificates (relating to electrical work and testing). The court thought that it was inappropriate for such defence and cross-claims to be resolved in insolvency proceedings.  It held that the proper place for the dispute was adjudication or ordinary court proceedings and the use of the insolvency route was an abuse of process.

This decision serves a timely reminder that, although the insolvency route may be used in some circumstances, if a genuine dispute is raised it needs to be abandoned and contested in a normal dispute forum.

Although correct at the time of publication, the contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.