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This case concerns a Part 7 claim by ProMEP Limited (“ProMEP”) against Henry Construction Projects Limited (“Henry”) for the enforcement of an adjudicator’s decision awarding it a sum of £90,380.49 and a Part 8 Claim by Henry against ProMEP, seeking declarations that a company voluntary arrangement (“CVA”) entered into by ProMEP on 25 October 2021 settled all claims of ProMEP against Henry.
The relevant project in this case is a project at Stanbridge Earls, Stanbridge Lane, Romsey, in respect of which the parties entered into a JCT DB Sub/C 2016 form with amendments. The dispute between the parties in this case largely turned on the interpretation of provisions of the CVA, as if the CVA was deemed to settle all of ProMEP’s claims, this would serve as a full defence to ProMEP’s adjudication enforcement.
The underlying adjudication was commenced on 18 November 2022. ProMEP’s argued that Henry committed a repudiatory breach of the contract and claimed unpaid sums and damages totalling £887,545.80. Henry argued that ProMEP was in repudiatory breach and had wrongfully terminated the contract, and advanced a counterclaim for £825,208 in damages. In subsequent submissions in the adjudication, both parties argued that the other party’s claims had been settled by the CVA. In a decision dated 5 January 2023, the adjudicator found in favour of ProMEP and awarded it a total of £90,380.49.
Henry’s main argument before the court was that the CVA was intended to operate as a full and final settlement of all amounts due to the creditors of ProMEP. The proof of debt process for the CVA expressly incorporated the Insolvency Rules 2016 and automatically applied the insolvency set-off process in rule 14.25. Henry additionally argued that a summary of Counsel’s advice relied on by ProMEP was a “material misrepresentation of fact” relied on by the adjudicator, and that the position on enforcement should be different where the issue concerned an insolvency set-off so long as Henry’s position was arguable.
ProMEP’s position was that under the Insolvency Act 1986 a CVA binds all creditors whether or not they were aware of the CVA or participated in the arrangement. Clause 8.3 of the CVA expressly provided that all assets, other than those identified in the clause, were excluded from the CVA and contained wording to make the list provided inclusionary rather than exclusionary. Further, potential claims arising out of the termination of contracts were too speculative and complex to be taken account of in the CVA.
The Judge did not consider that there was a misrepresentation of ProMEP’s Counsel’s advice. The judge was also not persuaded by Henry’s submission that the position on enforcement should be different where the issue concerned an insolvency set-off. In this regard, the key distinction was that the case relied on by Henry concerned a liquidation, where set-off is mandatory, and the present case concerned a CVA, where it is not. The Judge also preferred ProMEP’s construction of Clause 8.3 of the CVA, finding that there were considerable difficulties with the fact that Henrys construction required Clause 8.3 to define the distribution funds to be paid to the CVA creditors, which it does not do. Rather, Clause 8.3 operates on the basis that the excluded assets will be utilised to implement the arrangement and fund future trading. Accordingly, the Judge refused to grant the declarations sought by Henry and concluded that there was no reason not to enforce the adjudicator’s decision.
This case serves as a reminder of both the potential complexity and the relevance of insolvency processes to the construction industry. It illustrates the value in fully understanding the effects and implications of one’s own insolvency and restructuring processes as well as those of other parties, as these may have unexpected consequences regarding cash flow. This is further illustrated by the fact that on the date of the judgment, Henry itself had entered into administration.