REUTERS | Jason Lee

Another one bites the dust

I haven’t used a song reference on the blog for a long time, but Queen’s Another one bites the dust seems apt in the circumstances after the latest in a long line of high-profile company insolvencies in the construction sector. This one, reported at the end of last week, affects the Doyle Group.

Earlier this year, the ONS released figures demonstrating that construction output is down. I thought Michael Levack, chief executive of the Scottish Building Federation, summed up the situation when he said:

“In reality, jobs are down, bankruptcies are up, output has plummeted and there’s little prospect of recovery this year.”

The headline insolvencies support that view and, regardless of the current label used by government to describe the state of the economy, it seems the construction industry remains in recession. We don’t seem to be building our way out of it either, even if the stadia and associated buildings for the London 2012 Olympic Games and Paralympic Games are a success story and have been completed on time and in budget (or so they tell us).

So, how does this impact on adjudication?

The number of referrals to adjudication is up, compared to a year or two ago. That is not just my experience, I know other adjudicators are saying the same. I’m not really in a position to comment on whether this increase in adjudication activity is indicative of tough financial conditions, but I suspect it is.

Conversely, in the same time frame, we have seen less reported court judgments on adjudication enforcement, which also suggests the parties have less appetite for challenging the adjudicator’s decision and incurring the costs that are involved. I have no evidence, but it suggests that, for the most part, parties are simply accepting the adjudicator’s decision and moving on.

What happens if an adjudicating party becomes insolvent, or you think they are?

The financial status of the parties to an adjudication is always relevant, particularly at the enforcement stage, should matters come to that. It is always difficult to persuade a TCC judge not to enforce an adjudicator’s decision. If one party was responsible for a worsening financial situation, it is also unlikely that the court will grant a stay of execution on enforcement.

Before matters reach that stage, it is also worth considering whether adjudication is the best way to get money from the other party. It may not always be the answer. Alternatives such as a statutory demand or a winding-up petition may be more cost-effective and quicker (which could be a factor if you suspect the financial credentials of the other party). Equally, the threat of one of these processes may be enough to get money from that party.

If the adjudication is underway when the insolvency occurs, the administrator will need to be involved. It is impossible to predict whether he will decide to proceed with the adjudication. It’s a commercial call and will most likely depend on whether its viable to keep paying out money to help increase the size of the insolvent company’s financial pot. Even if the administrator decides to withdraw, that may not mean the end of the adjudication (see my thoughts on one-sided adjudication) or an end to a liability for the adjudicator’s fees.

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