Construction insolvency—how to spot problems and how to protect yourself—employers
Produced in partnership with CMS
Practice notesConstruction insolvency—how to spot problems and how to protect yourself—employers
Produced in partnership with CMS
Practice notes
This Practice Note is intended to provide advice to employers on how to spot problems with insolvent contractors and how the employer can take steps to protect itself in advance. For details on the steps to take in the event the contractor has become insolvent see: Employer steps to take if contractor becomes insolvent—checklist.
Spotting the early symptoms of contractor insolvency
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most importantly an employer needs to keep alert to the contractor's financial status
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the employer should take heed of ongoing rumours about the contractor's financial position (either in the press or by word of mouth)
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look out for official announcements to shareholders/the stock market (for example, profit warnings)
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keep aware of non-payment or late payment of sub-contractors by the contractor
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note any late or partial commitment to key supply contracts by the contractor
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be aware of any redundancies or inexplicable removal of personnel from the project by the contractor
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removal of materials or plant from the site
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any reduced resourcing by the contractor on site
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note
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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Insolvency definition
What does Insolvency mean?
This can be defined by two alternative tests (Insolvency Act 1986, s 123):
• cash flow test: a company is solvent if it can pay its debts as they fall due, no matter what the state of its balance sheet (Re Patrick & Lyon Ltd [1933] Ch 786);
• balance sheet test: a company which can pay its debts as they fall due may be insolvent if, according to its balance sheet, liabilities (including contingent liabilities) exceed assets.
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