Problem: adjudicator’s decision in my favour against a bankrupt builder
I am the managing director of a building company. The company has been trading for just over 20 years now and has been very successful during that time, although the recent recession did hit quite hard.
Since 2013 the company has seen such a significant increase in workload that my existing resources could not cope. I, therefore, ended up subbing-out a couple of entire projects to different main contractors in order to alleviate the pressure. One of the projects went reasonably well, but on the other project, the main contractor (who was trading as a sole trader) let us down badly and failed to finish. The project was eventually completed, albeit late and we made a thumping loss.
I subsequently sent a claim for damages to the main contractor but did not even receive an acknowledgement. I then referred the dispute to an adjudicator and received a favourable result. However, part-way through the adjudication, the main contractor made it known that he was recently discharged from bankruptcy, having become bankrupt just after he ceased working on my company’s project.
So, my present position is that I have an adjudicator’s decision in my favour for a sum in excess of £75,000, against a discharged bankrupt who is resisting payment on the basis that the debt arose from liability prior to him entering bankruptcy. Any advice would be welcome.
Response: Unable to enforce the adjudicator’s decision if the debt arose from liability prior to him entering bankruptcy.
I have no doubt that this matter has been very trying for you. Unfortunately, even though the main contractor (who is now a debtor) is a discharged bankrupt, he is correct insofar that you will not be able to enforce the adjudicator’s decision if the debt did arise from liability prior to him entering bankruptcy.
Under the Insolvency Act 1986, if a debt is a bankruptcy debt or liability it cannot be pursued. To qualify as a bankruptcy debt, liability must exist at the commencement of the bankruptcy or arise from an obligation incurred before the bankruptcy order. The cause of action for your damages claim arose from the contract that you entered into with the main contractor before he entered bankruptcy and hence the debt, as evidenced via the adjudicator’s decision, is, in fact, a bankruptcy debt as defined under section 382(1)(b) of the Insolvency Act 1986 and therefore you are unable to pursue the debt.
That said, I am surprised that the adjudicator was allowed to progress and issue his decision, as the adjudication should have been halted once the main contractor had made known of his bankruptcy and with this in mind, you may be able to argue that the main contractor is liable for at least the adjudicator’s fees as the contract with the adjudicator came into being after the bankruptcy order was made.
© Michael Gerard 2015
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.