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Guidance on Insolvency and Adjudication Proceedings

In giving useful guidance on the inter-play between adjudication proceedings and insolvency, the High Court has directed a stay of execution of an adjudicator’s award pending the hearing of a winding up petition against one of the parties to the dispute.

A construction company (company A) had been contracted to work on a residential development by company B. About a year into the contract, it became clear that company A was in serious financial difficulties. Company A eventually ceased trading and company B terminated the contract.

An adjudicator subsequently ruled that the contract had not been validly terminated and directed company B to pay company A more than £200,000. Company A, which was facing a winding up petition, asked the Court to order summary enforcement of the adjudicator’s decision.

That application was resisted by company B on the basis that it had its own claim against company A which it valued at more than £470,000. It was submitted that the winding up petition against company A was supported by a number of other creditors who were said to be owed substantial sums and that company A was also labouring under a £260,000 overdraft.

On that basis, company B argued that company A was insolvent and expressed concerns that, if it complied with the adjudicator’s decision, the money would be used either to satisfy other creditors – one of whom had a substantial judgment against company A – or that it would disappear into the overdraft.

The Court declined to make a finding that company A was insolvent, on the basis that such a ruling might pre-empt the decision of the Registrar dealing with the forthcoming winding up petition. The existence of that petition, which might or might not be successful, was not a good reason for refusing to grant company A summary judgment in the amount of the adjudicator’s award.

However, in granting company B a stay of execution, the Court accepted that there was a ‘high risk’ that, given the extent of company A’s overdraft and alleged debts, it would not be in a position to repay any sums that it received. The Court found that company B’s failure to satisfy the adjudicator’s award was not, in itself, a significant cause of company A’s financial difficulties.

Alexander & Law Limited v Coveside (21BPR) Limited. Case Number: HT-13-363