Winding up petitions and construction contracts

29.09.17

The recent case of Breyer Group plc v RBK Engineering Limited considered the use of winding up petitions in construction contracts.


An application was made by Breyer to stop RBK from continuing with a petition to wind up the company. The court decided that winding up petitions can operate as a form of commercial oppression and may not be appropriate, especially when adjudication or ordinary proceedings would be a more appropriate forum for the dispute.


The background


In 2015, RBK was engaged by Breyer as a subcontractor to provide labour, plant and materials in relation to kitchen and bathroom refurbishment works. 


RBK was employed under an initial contract which contained confusing and contradictory payment terms. An appendix provided timings for applications and notices which the court commented were difficult to reconcile with the payment provisions contained in the body of the agreement.


Additional works were required in 2016 and a new subcontract was proposed. This was never agreed. RBK continued to provide services and the 2015 subcontract continued to apply.


The dispute


The relationship between the parties broke down: Breyer delayed in making a number of payments; RBK was struggling to fulfil its obligations; and there was a dispute in relation to the quality of works. 


The parties tried to resolve their differences and entered into a settlement agreement which contained a schedule of payments. The final application for payment (application 10) was made by RBK on 3 February 2017. A Payment Notice was not served until 1 March 2017. 


RBK argued that the Payment Notice was out of time and Breyer was due to pay RBK the sum of £258,729.16. Breyer did not pay and RBK started winding up proceedings. 


The decision


Breyer delayed in making payments under the contract and RBK claimed that this showed that Breyer was unable to pay its debts when they were due and that Breyer had also admitted it was insolvent.  


The court did not agree. Breyer was not insolvent and unable to pay its debts – this was “not a case of can’t pay, but won’t pay”. There was a “genuine dispute” between the parties in relation to the terms of the contract, the quality of the works and the validity of certain certificates for electrical works. Breyer had arguable defences and counter claims to the sum claimed by RBK.

 

The court commented that in these circumstances, the winding up petition was an abuse of process and an attempt to cut out the adjudication process. 


Comment


The court highlighted that insolvency proceedings should not be used as a tactic to pressurise a company into paying a debt where it is genuinely in dispute. 


That being said, a winding up petition or a statutory demand can have a significant impact on a company and may lead to a company’s bank accounts being frozen or credit rating being affected. There are short timescales to allow for defences to be lodged so it is vital to act quickly and respond to any such proceedings. Lodging caveats with the court can ensure that you are notified immediately should an action be lodged.