ISG in Administration: How can sub-contractors protect themselves?

Trainee construction lawyer, Fiona Cursons, takes a look at the recent collapse of ISG Group and the effect this may have on sub-contractors.

ISG Group, one of the UKs biggest contractors, announced on Friday 20th September 2024 that it has entered into administration. This will leave many sub-contractors in the dark as to what happens next with their unfinished contracts, will they be paid any remaining sums due and what can they do to protect themselves in the future.

In these circumstances, the sub-contractors will be ranked as unsecured creditors meaning they will be far down the list of creditors to be paid. As such, there may not be much money remaining and the chances of receiving money owed is greatly reduced. Therefore, the best thing to do is limit the risks from the outset.

What should you do?

If you are worried an employer or main contractor has gone into administration, you should firstly establish that it is not just a rumour. Provided you have reviewed the contract and followed the terms and conditions, you may be able to secure any plant equipment and materials that you have on site. However, this will vary with each individual contract. If you are not sure, it is always best to seek advice.

You will also need to consider the situation. There may be step-in rights as part of the contract meaning that the funder or employer can step in to the project to ensure it can reach completion. This will, in turn, ensure that the project continues and that you are paid any funds due to you.

You may need to submit a proof of debt to the administrator to ensure you can recover a share of the monies owed from any remaining funds.

How can a Company protect itself?

There are many ways sub-contractors can protect themselves in these situations:

1. Monitor the signs
   Sub-contractors should be looking out for any announcements made to shareholders or the stock markets on behalf of the employer. Also, if there are any rumours in the press, take note of these and seek advice on your contracts. If there are numerous employer redundancies or you note lots of people are being removed from a project, this may also be a sign. Finally, if payments to you are repeatedly delayed or works are suspended with no reasoning or explanation, these are red flags.
2. Thorough research into the Contractor/Employer
   Run credit checks against contractors and employers. Whilst this may not provide a full picture it may allow you a glimpse into a company’s financial situation. Additionally, take a look at the company’s latest accounts on Companies House. Checking the directors will also provide useful insight into whether the contractor is an SPV.
3. Chase your payments
   Ensure you are making regular payment applications in accordance with the contract, and receiving regular payments as per the contract. Do not let large amounts of aged debt mount up over time. If the employer enters administration, these will be extremely hard to recover. The best thing to do is to chase aged debt regularly and to continue making your payment applications including any aged debt within them. Equally, if you believe sums are due to you and the payment mechanism in the contract has not been followed reach out to the construction department at Holmes & Hills for advice.
4. Termination
   Most contracts, such as the 2016/2024 JCT design and build sub-contract, allow for termination in the event that the main contractor or employer falls into insolvency. Ensure you seek advice prior to terminating any contract to ensure you are following the correct terms and process. Terminating the contract incorrectly can lead to an employer or main contractor claiming wrongful termination which could be an extremely costly mistake.
5. Parent Company Guarantees
   If you are working for a contractor who is an SPV, ensure you request a parent company guarantee. This can ensure that, in the event the contractor runs out of funds or goes into administration or insolvency, you can look to recover the sums due from the parent company.
6. Be Commercial
   Do not rely on only one contractor for all of your employment and commercial contracts. This could result in your company facing financial difficulty if they go into administration. If you have a wide plethora of work from many contractors and employers, then you lessen the effect to yourself of one of those companies entering into administration.

Conclusion

To summarise, it is best to ensure you are prepared and in the best situation possible prior to the worst happening. Rather than finding yourself in an exposed situation trying to recoup what you can after a company has entered into administration. Holmes & Hills has a team of experienced and specialist construction contract solicitors who are able to review your current contracts and help with the drafting of new contracts.