What to Do When Your Construction Company Main Contractor Goes into Administration
The construction industry has been hit hard recently, with about 12% of UK construction companies in distress last year — around 80,000 companies. High interest rates, inflation, cash flow gaps between work and payment, low profit margins, and group company failures have all contributed. This article focuses on what subcontractors should do when their main contractor goes into administration — from understanding what administration means to taking action now and learning for the future.
What is Administration?
- Administration means an insolvency practitioner (IP) takes over to try to rescue the business. They initiate a statutory moratorium to allow breathing space and time to develop a survival plan.
- The IP will aim to convert assets into cash to pay creditors. If rescue proves impossible, assets may be sold and the company liquidated.
- Administration allows continued trading to generate funds and find a potential buyer. But in construction, low margins make this unlikely.
Impacts on Subcontractors:
- Outstanding invoices and payment applications are at risk. Subcontractors must quantify what they are owed.
- Legally, supply contracts may have to continue despite non-payment. But there are exceptions subcontractors should review.
- There may be knock-on impacts up the supply chain e.g. employers considering stepping in or terminating main contracts.
Actions for Subcontractors:
- Contact the IP with details of outstanding debts. Follow their process.
- Review legislation like the Corporate Insolvency and Governance Act. Understand contract terms around e.g. title retention.
- Collate project documents and evidence to support debts.
- Liaise with other subs to share info and support each other.
Learning for the Future:
- Build cash reserves to protect against payment problems.
- Check counterparties’ credit ratings and balance project portfolio risks.
- Ensure robust payment processes consistently applied.
- Consider insurance to cover late/non-payment from contractors.
Conclusion:
A main contractor going into administration can seriously impact subcontractors and lead to a domino effect of failures. Stay calm, understand the immediate actions needed, learn lessons for better risk management in future contracts.
The key is being prepared, both legally and financially, to protect your business as much as possible.
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