When considering whether there are insolvency risks in your project, the answer is "there usually are". The reality is that there are inherent risks associated with the typical construction project. It can take many months (if not years) to complete the works with a payment regime that may have a significant impact on cash flow - the result is that an entity that was robust at the outset may have suffered a significant change in its financial position by the end (if it reaches the end).
However, steps can be taken to minimise such risks. Before entering into a construction contract, consider obtaining third party guarantees or protections - parent company guarantees, sub-contractor guarantees, on demand bonds, collateral warranties - and take steps to protect assets (such as equipment and materials) by utilising and implementing retention of title clauses.
If and when things go wrong it is important to act quickly. It is often the case that rumours and whispers in the industry are the first indication that there may be solvency issues. If you start to hear such rumours, engage your solicitors to review your contracts and advise on taking protective pre-emptive steps. Then, if the worst happens and the other party to your contract does become insolvent, your team will be ready to act without any delay and take whatever steps available to protect you.
At Morton Fraser we have a large and experienced construction team who regularly advise on the risks associated with insolvency in the industry. Working closely with our colleagues who specialise in general insolvency, we provide a comprehensive service to assist in mitigating losses as a result of insolvency.
