Infrastructure

Out-Law Legal Update

Liquidators can use, but not enforce, adjudication in construction contracts

Companies in liquidation can theoretically refer claims to an adjudicator under construction law but it would be a futile exercise as the decision could not be enforced in most cases, the Court of Appeal in England has ruled.The ruling narrows the options for liquidators seeking payments from solvent companies. The practice of liquidators threatening or commencing low cost adjudications as a tactic to reach settlements for the benefit of creditors, even where the enforcement of an adjudicator's decision could be stayed, is likely to be a futile exercise. Whilst the appeal does not strictly prohibit the tactic, it places the liquidators at a significant costs risk, which could include personal liability, if a responding party has to defend the adjudication.The ruling makes it clear that courts will take a different approach if the company is in a company voluntary arrangement (CVA), and leaves the door open for an administrator to run an adjudication if they continue to trade the business, and can satisfy the court that the purpose of the administration is to rescue the company as a going concern.