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Is Insolvency A Breach Of Contract?

The quick answer

In most cases, yes it normally is. However, for insolvency to be a breach of contact it does depend on what is actually written in any contract between the insolvent company and the customer. For example, sometimes the terms of a contract state liquidation is a breach of contract but Administration is not.

In more detail

Normally where there is a written contract between a company and a customer there will be a clause that covers what happens in the event of insolvency. This will need to be reviewed to decide on the outcome which may be different for liquidation than for bankruptcy or Administration.

A property lease is a contract and often the lease will state insolvency gives the right to the landlord to forfeit the lease.

Another typical situation we see often is a construction firm goes into liquidation. The construction firm often has contracts with a main contractor in writing called a JCT contract (*1.). These are contracts between the company and any construction clients or customers. The JCT contract will set out what happens in the event of insolvency and may include, for example, that the customer can find a new builder and charge the cost to the insolvent company – offsetting anything still to be paid to it. It can also offset any final retention’s due.

*1. A JCT contract stands for a Joint Contracts Tribunal contract which is a standard contract used by construction firms between customers and building contractors.

tip

If you need insolvency advice the earlier you talk to someone like us the better as you will have more options. We can help, contact us today.

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Author: David Kirk - ACA FABRP
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David Kirk

Licensed Insolvency Practitioner