When a construction company enters insolvency, unpaid work, book debts and retention monies can represent significant potential recoveries for creditors. Yet pursuing construction debts can be difficult when disputes arise over contracts, payment or the amount actually owed.
The landmark Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited [2020] UKSC 25 decision changed the position for insolvent construction companies by confirming that an insolvent company can use the adjudication process.
For insolvency practitioners, this can provide an important route for pursuing construction debt recovery.
What Was the Bresco Case About?
Bresco Electrical Services Limited was in liquidation and had a dispute with Michael J Lonsdale (Electrical) Limited concerning money said to be owed under a construction contract.
Bresco’s liquidator sought to refer the dispute to adjudication. However, the first-instance court granted an injunction preventing the adjudication from proceeding. The Court of Appeal subsequently upheld the injunction, although on different grounds.
Pythagoras Capital acted for the liquidator of Bresco and challenged the decision at the Supreme Court.
The Supreme Court unanimously allowed Bresco’s appeal. The judgment was handed down on 17 June 2020 as [2020] UKSC 25.
What Did the Supreme Court Decide?
The Supreme Court determined that an insolvent company does retain its statutory and contractual right to adjudication.
Importantly, the Court rejected the argument that insolvency set-off meant there was no longer a dispute capable of being referred to adjudication. It also rejected the view that adjudication would necessarily be futile simply because the referring company was insolvent.
Pythagoras Capital describes the decision as removing a substantial roadblock for insolvent construction companies seeking to recover debts owed to them.
Why Does Bresco Matter for Construction Debt Recovery?
Construction insolvencies can involve significant sums in:
- Work in progress
- Book debts
- Retention monies
- Contractual claims
- Disputed payment claims
Pythagoras Capital’s construction insolvency service specifically focuses on recovering debts owed to insolvent construction companies, including work in progress, book debts and retentions. The firm states that it pursues all debts rather than cherry-picking individual claims.
Bresco therefore has particular importance where an insolvent construction company has a genuine contractual dispute that may be suitable for adjudication.
Does Bresco Mean Every Adjudication Decision Will Be Enforced?
No. This distinction is important.
The Supreme Court established that an insolvent company can pursue adjudication, but it did not provide an automatic guarantee that every adjudication decision involving an insolvent company would be summarily enforced.
Pythagoras Capital’s own Bresco case summary specifically notes that enforcement was left open by the Supreme Court, directing attention to subsequent authorities including Meadowside and Astec Projects.
Therefore, insolvency practitioners considering adjudication should consider both the prospects of obtaining a decision and the circumstances surrounding its enforcement.
What Does This Mean for Insolvency Practitioners?
For an insolvency practitioner dealing with a construction company, insolvency should not automatically mean that potential adjudication claims are abandoned.
The Bresco decision removed a significant obstacle to pursuing construction disputes through adjudication. This can potentially provide another avenue for recovering money owed to an insolvent construction business.
Pythagoras Capital states that its involvement in Bresco established an important precedent for insolvency practitioners dealing with construction insolvencies. The firm continues to use adjudication as one of the key tools in its construction insolvency recovery work.
Construction Debt Recovery After Bresco
The Bresco decision is particularly relevant when reviewing a construction company’s debtor book.
An insolvency practitioner may need to consider whether outstanding construction debts, retentions, work in progress or contractual disputes have recovery potential. The appropriate route will depend on the individual circumstances of each claim.
Pythagoras Capital provides a fully funded, no-win, no-fee service for construction insolvency claims. Its in-house team combines insolvency lawyers, construction lawyers and senior engineering expertise, allowing claims to be assessed and pursued within one service.
The firm also states that 99% of its debt recovery cases have been completed within six months to date, although individual cases will naturally vary.
The Continuing Importance of Bresco
Bresco remains an important authority for construction insolvency because it confirmed that an insolvent construction company does not simply lose its right to adjudicate because it has entered an insolvency process.
For insolvency practitioners, administrators and liquidators, the practical lesson is to ensure potential construction claims are properly identified and assessed rather than assuming insolvency prevents adjudication.
Pythagoras Capital’s involvement in Bresco Electrical Services Limited v Michael J Lonsdale Electrical Limited [2020] UKSC 25 gives the firm a distinctive connection to one of the most significant construction insolvency decisions of recent years.
If you are dealing with an insolvent construction company with outstanding debts, contractual claims or potential adjudication proceedings, Pythagoras Capital can assess the recovery opportunity and provide fully funded support without requiring an upfront contribution from the estate.