The flow of interim payments has come to a stop and it looks ominous. What to do? Wait for an adjudication – or go for broke with a winding-up petition?
Twelve months ago, when you priced the subcontract, it seemed that there was nothing to worry about. Your employer was a big, well known main contractor – not the kind of outfit that’s likely to go bust.
Twelve months is a long time. Payments came through more or less on time to start with, then began to get a little slow. Then you had to chase a couple long and hard, and now there seems to be a real problem with the latest. It’s three weeks overdue, and when you spoke to your contact at head office you were told that they knew they owed you £100,000, but no cheques were being written that week. They might be able to let you have something on account at the end of the month, but otherwise there is nothing that can be done.
Meanwhile, there are all sorts of rumours in the trade press about the contractor’s problems on this site and that site and their share price is going rapidly south.
Much head scratching. There is little point in threatening to suspend work on site, because you have just about finished the job. You feel like going back and taking down everything that you have put up, but apparently that’s against the law. You have read a lot about adjudication over the last few years but you have been told that that takes four weeks even when the adjudicator has been appointed, and then you have to go to court to enforce it. Everyone knows that legal action takes even longer. Is there anything that can be done to get paid before it’s too late and the contractor has gone bust? Well, maybe there is. This is just the time to think about the nuclear option – the winding up petition.
A winding-up petition is an application to the court to close the company down. For good. If the court agrees, the company is put into liquidation. That is not what you want, because you will be an unsecured creditor, and will probably receive nothing at all.
On the other hand the threat of a petition is a surefire way to get the company to take notice of you. Seven days after the petition is issued it is advertised, and the banks find out. They will probably shut the company’s account down, and trading effectively finishes long before the petition is heard. Any chance of getting out of the financial mess is likely to be lost. Your contractor may be facing a pile of moaning letters from subcontractors. Next to that pile there is a heap of adjudication notices. Then there is a stack of court summonses. All those can be put off until tomorrow. The threat of a winding-up petition grabs the attention. The subcontractor who fires that one goes straight to the head of the queue.
A winding-up petition is an application for the court to close the company down. For good
There is a popular misconception that you have to send off a “statutory demand” before you can issue a winding-up petition. That is only one option. The court will wind up a company if it is persuaded that it is unable to pay its debts as they fall due. One way of proving that is to deliver a statutory demand to pay a clear debt and wait 21 days. If the debt is unpaid after that the court will not need any more persuasion.
But the courts will also be persuaded if there is an unpaid and overdue invoice that is not disputed. That was decided by the Court of Appeal in Taylor Industrial Flooring vs M and H Plant Hire way back in 1989. The case is made stronger by the person who said there was no money for anyone this week.
So this is what you do. Tell your solicitor to draft a winding-up petition ready for issue. Then get him to send it to the company saying that unless the debt is paid within 24 hours (48 if you are feeling generous) the petition will be issued. You won’t win any friends but you will have a better chance of being paid than anyone else.
Do not contemplate this if there is any doubt at all about the money being due. If there is any sort of argument that the company can come up with to say otherwise, you may be involved in emergency injunction proceedings which could prove very expensive.
John Redmond is head of construction at solicitor Osborne Clarke in Bristol