Clearing the air over the use of moratoriums
A recent case offers useful guidance on insolvency, says Stuart Thwaites.
The effect of placing a company into administration is to create a “moratorium” – preventing court proceedings against the company without the court’s permission.
Construction insolvency remains a troubling issue. As a result, recent guidance on whether proceedings to enforce an adjudicator’s decision will be allowed to continue where a company is in administration is to be welcomed.
The case was South Coast Construction Ltd v Iverson Road Ltd  EWHC 61 (TCC). South Coast was employed by Iverson Road in relation to a construction project. South Coast suspended work for non-payment. As a result Iverson Road instructed the omission of the remaining works, and issued a non-completion certificate together with notification of its intention to deduct liquidated damages.
South Coast referred the subsequent dispute over payment to adjudication. The adjudicator found in South Coast’s favour and awarded it circa £870,000. Iverson Road did not pay the sum awarded. So South Coast began court proceedings to enforce the decision.
At first, Iverson acted in the usual way in such proceedings. It said it would resist enforcement of the decision on the grounds that the adjudicator had exceeded his jurisdiction. But less than two days before the hearing, Iverson’s solicitors wrote to the court with a notice of intention to appoint an administrator. They said the moratorium under the insolvency rules did not expire until the end of the day of the hearing. As a result, said Iverson, the hearing could not take place.
It was subsequently disclosed that this notice of intention to appoint an administrator was not the first one. It was in fact the third such notice, though Iverson had not disclosed the others to the court or South Coast. Iverson went into liquidation on the day of the hearing. The liquidator told the court no stay of proceedings was sought. The moratorium had come to an end.
The judge explained that although it was not now necessary for the court to deal with the application for permission to continue with the proceedings, because the moratorium had ended, it would nevertheless do so: the issues involved had wider ramifications and so would be of interest to those facing a similar situation.
The judge reviewed the previous cases on the issue of stays of proceedings and moratoriums. He said that had the moratorium remained in place, he would have granted the application to allow the proceedings to continue for enforcement of the adjudicator’s decision.
He reached that conclusion for two reasons:
- By applying the existing case law and taking into account Iverson’s conduct, which came under considerable criticism. The judge said it had been playing “something of a deliberate double game”.
- Because of the unique nature of adjudication and enforcement of adjudicator’s decisions – a matter of key importance for this article.
Enforcing the decision
The judge rejected Iverson’s argument that if he gave judgement to enforce the decision, it ran the risk of preferring South Coast over other creditors. Even with judgement in its favour, South Coast would still be an unsecured creditor.
The judge said that court proceedings to enforce adjudicator’s decisions were significantly different to other court proceedings claiming money. He said they were “without any real parallel in other parts of the High Court”. Where there is an adjudicator’s decision, and all that remains is to enforce it by an application to court, then that is sufficient to meet the test for lifting the moratorium, so enabling the enforcement proceedings to continue despite the administration of the company.
The judge gave judgement for South Coast in the sums awarded by the adjudicator, enforcing the decision.
Stuart Thwaites is a legal director at Wright Hassall in the firm’s construction and engineering team. He can be contacted on email@example.com or 01926 884690.