CVA? Don't have to pay!

CVA? Don't have to pay!

In the recent decision of Indigo Projects London Ltd v Razin and another [2019] EWHC 1205 (TCC), the Technology and Construction Court (TCC) has refused to enforce an adjudicator’s decision for payment after the Claimant entered into a company voluntary arrangement (CVA).

Facts

In April 2017, Mr and Mrs Razin (the Defendants) engaged the contractor, Indigo Projects London Ltd (the Claimant) to construct a new four storey house under the JCT Standard Building Contract With Quantities 2011.

Nearly a year after the original completion date, the Claimant finally reached practical completion. However allegations that the works contained numerous defects were made by the Defendants, who disputed the standard of work and argued entitlement to liquidated damages for the delay.

On 20 June 2018, the Claimant issued an interim payment application for the works that they had carried out, totalling £202,036.06.  As many of you will be aware, where an employer wishes to pay less than the amount specified in a payment notice, they must issue a ‘pay less notice’, otherwise the sum applied for becomes due and payable. Upon a failure to issue such a notice, the full sum became due and the final day for payment was 29 June 2018.  When the Defendants only paid £30,000 on account, Indigo referred the dispute to adjudication.

Given the Defendants’ failure to issue a pay less notice, it was not surprising that the adjudicator decided that they were obliged to pay Indigo the full sum within 7 days, with interest, less the money paid on account. When payment was not forthcoming, the Claimant applied for summary judgement to enforce the decision of the adjudicator, but before enforcement proceedings began, the Claimant entered into a CVA. Upon discovery of this, the Defendants sought to resist enforcement of the award, arguing that this would undermine the proper operation of the CVA or alternatively, if the application was to be granted, that a stay of execution should be given on the basis that should their cross claims on defects and delay succeed, the CVA meant that Indigo would be unable to repay the judgement sum.

Decision

The TCC accepted the Defendants’ arguments and refused to order payment. Distinguishing the case from recent authorities (Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd, Cannon Corporate Ltd v Primus Build Ltd), the Court said that ordering payment after the CVA had been entered into would distort the process of accounting under the CVA because the money would not be applied for the sole benefit of the Defendants, but instead for the benefit of the creditors generally. Agreeing with the Defendants, the Court also decided that it would not be ‘fair or appropriate’ to order payment when the value of the Defendants’ cross claims could not be determined.

Comment

This case highlights the risk of entering into a CVA where there is the existence of an unsatisfied adjudicator’s decision. Although previous authorities have shown that summary judgement should not be refused or a stay of execution granted just because a company is in a CVA, this case demonstrates that depending on the sequence of events, entering into a CVA could have consequences on the enforcement of an adjudicator’s decision.

 

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