Legal brief: A structured approach to re-structuring

Firms should have their wits about them if a consultant they have been working with has engaged in restructuring.

If a consultant’s company (“A”) re-forms as a new company (“B”) (whether because of the administration of A or simply because it has a more efficient way of structuring its company) and the consultant expects the developer to enter into a new contract with B, here are our top tips for what to check:

• Why is the company re-structuring? If its balance sheet looks suspect then how much is its appointment worth if you need to make a claim. Is there any pending litigation? If the risk is high, it might be prudent to engage an alternative consultant, notwithstanding the cost.
• How technical is the work? What is the quality of A’s work so far? If there is little left to do, it might be sensible to engage B rather than (at great expense) engaging an alternative consultant (“C”) to undertake the remaining works.
• When does the consultant’s professional indemnity insurance cover expire? Have the insurers been notified of the re-structure? Will the insurers confirm that they will cover any claims which were due to the negligence/design defects undertaken by A?
• Will there be any copyright issues in using A’s drawings and specifications if B (or indeed C) is engaged?
• If you appoint B (either by way of novation, which is most common in the market, or separate appointment (if A is in administration or otherwise unable to execute a novation deed)) ensure that B accepts liability for all the services undertaken by A.
• Check the termination provisions in your current contract - will this cover any administration/re-structure events? It is not always the case that the developer can terminate at will in its contract.
• Remember that if A enters into administration it will be under a moratorium of a year which prevents any proceedings against it (unless the leave of the court is obtained). Do you have any concerns as to whether you might be in a position to issue proceedings against the consultant? If this is the case, it is even more important that point 5 is followed.

Kate Wansbrough-Jones is an associate at Olswang