Chapter 22 Insolvency in construction

Insolvency law is concerned either with a structured approach to business recovery or with the distribution of a debtor's estate among its creditors as a general body. There are two main corporate procedures: administration provides a breathing space for the company to consider its options free from creditor pressure; liquidation is the classic insolvency procedure whereby a company is closed down and ultimately dissolved. Insolvency law lays down an order of priority for payment of creditors. Secured creditors with a fixed charge are entitled to enforce their claims against the secured assets outside the formal procedures. Insolvency is not normally regarded as a breach of contract. In construction, potential damage resulting from insolvency is managed by the extensive termination clauses in the standard forms and security required from companies in the supply chain. Some protection is also available through contract terms dealing with set-off and title to goods. Insolvency practitioners often facilitate the completion of contracts by procuring novations whereby a contractor enters into a new contract on similar terms to that of the insolvent party. The principal sources of law are the Insolvency Act 1986 and the Insolvency Rules 1986 both of which have been heavily amended. The Rules are to be consolidated in 2011.