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

The following Construction practice 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
  • Corporate Insolvency and Governance Act 2020
  • Section 233B
  • Rights on non-payment
  • Drafting considerations relating to CIGA 2020

Termination on insolvency in construction contracts

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.

Following the implementation of Corporate Insolvency and Governance Act 2020 (CIGA 2020), suppliers have been prohibited from exercising contractual termination rights arising from insolvency situations through the introduction of a new section 233B of the IA 1986. CIGA 2020 represents a significant development to insolvency law in the UK and it may have an appreciable impact on supply chains in the construction industry. As CIGA 2020 only came into force on 26 June 2020, no established market approach has emerged as to how it will be addressed in contract drafting. Accordingly, this situation will have to be monitored.

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

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