Termination on insolvency in construction contracts
Produced in partnership with DAC Beachcroft
Termination on insolvency in construction contracts

The following Construction guidance note Produced in partnership with DAC Beachcroft provides comprehensive and up to date legal information covering:

  • Termination on insolvency in construction contracts
  • The IA 1986
  • JCT
  • NEC

Where a party to a construction contract becomes insolvent, the consequences of this insolvency are set out in the Insolvency Act 1986 (IA 1986). However, the contract may itself provide expressly for what is to happen where a party, usually the contractor, becomes insolvent.

The IA 1986

The IA 1986 deals with both the bankruptcy of individuals and with a winding up of companies. Where an individual who is a contractor becomes bankrupt, the contract will pass to the Trustee in Bankruptcy. Where a winding up order is made against a company trading as a contractor, the benefit and burden of the contract will remain with the company, the liquidator having stepped into the shoes of the directors to carry on the business of the company so far as is necessary for the benefit of the winding up.

Where a trustee in bankruptcy is appointed, they have the power to disclaim onerous property, which would include an unprofitable contract. The liquidator on the winding up of a company may also disclaim onerous contracts. Where the trustee in bankruptcy or liquidator disclaims such a contract, this will effectively terminate the contract. The employer in such a situation would then be a creditor of the contractor in the winding up and will be obliged to prove any losses it alleges in order to