Key Takeaways
- The Supreme Court in Bresco v Lonsdale confirmed that a company in liquidation can refer a dispute to construction adjudication even where insolvency set-off applies.
- Construction adjudication in insolvency is legally permitted and offers a quick and cost-effective way to resolve building-related disputes for insolvent companies and their creditors.
- Insolvency set-off does not extinguish underlying construction claims or cross-claims. These disputes must still be valued separately and can be determined by an adjudicator.
- If you are a respondent facing an adjudication from a company in liquidation, you must actively raise any cross-claims as a set-off defence during the process to safeguard your position.
- The court may refuse or stay enforcement of an adjudication decision in favour of an insolvent company if you can show a substantial, disputed cross-claim that was not decided in the adjudication.
- Time limits apply under the Scheme for Construction Contracts. After serving the Notice of Adjudication, you have just 7 days to appoint an adjudicator and serve the Referral Notice.
- Failing to act proactively can result in a binding adjudication decision or missed opportunity to challenge or defend a large claim, leaving you exposed to avoidable risk or financial loss.
- Contractors and insolvency practitioners should consider both the enforceability of any adjudication award and the costs-neutral nature of the process before issuing or defending a claim.
If you have an insolvency or adjudication dispute, book a free consultation with our construction solicitors for clear, strategic advice.
Can a Company in Liquidation Start a Construction Adjudication in England & Wales?
If a subcontractor goes into liquidation, but claims you owe them money, can they start a construction adjudication against you? Many contractors and creditors are unsure of their rights where one party is insolvent, especially with the added complication of insolvency set-off.
The Supreme Court in Bresco v Lonsdale confirmed that construction adjudication in insolvency remains available even where insolvency set-off applies. This ruling is important for contractors, insolvency practitioners, and anyone involved with construction disputes. It clarifies that underlying claims and cross-claims do not vanish and must still be valued separately. This article explains what Bresco means for construction adjudication and insolvency set-off, and describes practical strategies to protect your position.
Whether you are an insolvent contractor seeking recovery through your liquidator, or an employer facing adjudication from an insolvent subcontractor, you can find key steps to manage risk, defend or enforce claims, and understand how courts decide on enforcement.
Can a Company in Liquidation Start Construction Adjudication Proceedings?
A company in liquidation can start construction adjudication proceedings under a construction contract. The Supreme Court in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 confirmed this statutory and contractual right, even where there are outstanding cross-claims and insolvency set-off applies. Liquidators and insolvent contractors are entitled to use adjudication to pursue unpaid fees, damages or other construction contract disputes.
If you need guidance as a contractor, employer, or insolvency practitioner facing a construction dispute, our solicitors are ready to help you assess your options.
How Does Construction Adjudication Work When a Party Is Insolvent?
Construction adjudication is a rapid process designed to resolve construction disputes efficiently under the Housing Grants, Construction and Regeneration Act 1996. When one party is insolvent, special considerations and legal rules apply. Insolvency set-off means mutual debts and claims are netted off, but both sides’ claims are still valued separately.
What Is Construction Adjudication and Who Can Start It?
Under section 108 of the Housing Grants, Construction and Regeneration Act 1996, any party to a construction contract—including a company in liquidation—can refer a dispute to adjudication “at any time.” This right is a statutory default and applies to most construction contracts in England and Wales.
For further background, you may also find our article on construction payment disputes: understanding payment applications, pay less notices and adjudication useful.
What Is Insolvency Set-Off and How Does It Affect Adjudication?
Insolvency set-off is a mandatory rule under rule 14.25 of the Insolvency (England and Wales) Rules 2016. It requires that, following liquidation, all mutual debts and claims between the insolvent company and another party are netted off against each other. Importantly, the underlying claims do not disappear—they are each valued to determine the net balance.
The Supreme Court in Bresco confirms that adjudication is available during this accounting process. An adjudicator can decide the value of the company’s claim, the respondent’s cross-claim, or both, and these valuations feed into the set-off calculation.
What Did the Supreme Court Decide About Insolvent Companies and Adjudication?
The Supreme Court in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 held that companies in liquidation retain the right to adjudicate construction disputes, even when insolvency set-off applies.
Did Insolvency Set-Off Remove the Right to Adjudicate?
No. Insolvency set-off does not extinguish the individual rights under the contract for all purposes. Although mutual claims are replaced by a net balance for the purposes of liquidation, each claim is still to be valued separately to decide that balance. Disputes about the value of these claims remain “disputes arising under the contract,” suitable for adjudication, arbitration, or litigation.
The Court relied on Stein v Blake [1996] AC 243, confirming that although mutual debts are set off in liquidation, both claims still need assessment. A liquidator can thus use adjudication to resolve the company’s or the counterparty’s claims under a construction contract.
When Will the Court Allow or Refuse an Injunction to Stop Adjudication?
Injunctions to stop adjudication are very rare and are only granted in “very exceptional” circumstances. The presence of insolvency set-off is not enough to justify stopping adjudication. The right to adjudicate is statutory and contractual, and courts are highly reluctant to interfere.
| Case | Facts | Outcome | Why It Matters |
|---|---|---|---|
| Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 | Liquidator sought to adjudicate claim despite insolvency set-off. | Supreme Court refused injunction; right to adjudicate survives. | Establishes that insolvent companies can adjudicate construction disputes, even with set-off in play. |
| Twintec v Volkerfitzpatrick Ltd [2014] EWHC 10 (TCC) | Company sought injunction to restrain adjudication during liquidation. | Distinguished by Supreme Court in Bresco; principles limited. | Injunctions restraining adjudication are rare and limited after Bresco. |
Step-by-Step: Using or Defending Adjudication Where One Party Is Insolvent
For Liquidators and Insolvent Contractors: How to Start and Prepare for Adjudication
Liquidators and insolvent contractors may refer disputes to adjudication. Success depends on diligent preparation and strict attention to procedures. The statutory process under the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts requires:
- Serving a notice of adjudication at any time.
- Appointing an adjudicator within 7 days of the notice.
- Serving the Referral Notice within 7 days of the notice of adjudication.
Checklist before starting adjudication:
- Decide if adjudication is worthwhile:
- Is there a significant, properly quantified dispute?
- Is your claim likely to exceed any expected cross-claims?
- Is a prompt or negotiated resolution in your commercial interests?
- Prepare your evidence:
- Collect contract documentation, certificates, payment schedules, and expert reports.
- Provide clear calculations for sums claimed.
- Appoint an adjudicator:
- Use an agreed nominating body (such as RICS, CIArb, or RIBA).
- Serve the Referral Notice within 7 days of the notice of adjudication.
- Present the strongest possible case early:
- Adjudications are fast, usually 28 days to a decision unless otherwise agreed.
- Ensure funding for your share of the adjudicator’s fees, which is a liquidation expense.
For Respondents: How to Defend Yourself if the Claimant Is Insolvent
Employers, main contractors, or other respondents cannot block an adjudication simply because the referring company is in liquidation. However, respondents should take the following steps to protect their interests.
Checklist for respondents:
- Raise all cross-claims as defences:
- Identify and evidence every claim you have against the insolvent company under the contract.
- Engage fully in the adjudication:
- Respond promptly to all notices and submissions.
- Provide robust evidence and explanations for your defences.
- Avoid default outcomes:
- Failing to participate risks an unfavourable decision against you.
- Prepare for possible enforcement proceedings:
- Be ready to contest enforcement in court if your cross-claims were not properly dealt with in adjudication.
What Happens After the Adjudicator’s Decision in Insolvency Cases?
Adjudicator decisions involving an insolvent party may only be enforced if the net balance is properly established and any substantial, disputed cross-claims have been addressed. The court can refuse or stay enforcement of an adjudication award to enable set-off.
Will the Adjudicator’s Decision Be Enforced If the Claimant Is Insolvent?
Whether an adjudicator’s decision is enforced depends on the true net balance between the parties and how cross-claims are handled.
The Supreme Court clarified in Bresco and Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd that:
- If the claim exceeds cross-claims and there is no genuine dispute on the balance, enforcement is likely.
- Where a substantial, disputed cross-claim exists, the court may refuse or stay enforcement until the net position is clear.
| Scenario | Likely Outcome |
|---|---|
| Adjudicator finds for insolvent claimant and all defences/cross-claims are rejected | Award likely enforced |
| Substantial, disputed cross-claim not properly assessed | Enforcement likely refused or stayed |
| All disputes dealt with in adjudication and net balance is in claimant’s favour | Enforcement probable |
| Cross-claim outside of adjudicator’s jurisdiction or not fully determined | Enforcement may be delayed or refused until resolved |
Should Employers or Creditors Start Their Own Adjudication for Counterclaims?
Respondents may start their own adjudication as the referring party, especially if their cross-claim may exceed the sum sought by the insolvent claimant. This enables the net balance to be assessed by an adjudicator, rather than relying only on defence submissions.
Key Laws and Deadlines for Construction Adjudication and Insolvency
The key rules regulating adjudication and insolvency in England and Wales are:
- Housing Grants, Construction and Regeneration Act 1996: Section 108 gives all parties to a construction contract the right to adjudicate at any time. Section 113 bans pay-when-paid clauses.
- Scheme for Construction Contracts (England and Wales) Regulations 1998: Establishes the right to adjudicate, sets the 7-day appointment and referral deadlines, and a default 28-day period for the adjudicator’s decision.
- Insolvency (England and Wales) Rules 2016: Rule 14.25 mandates insolvency set-off, requiring mutual debts to be netted off. Rule 7.108 treats adjudicator’s fees as a liquidation expense.
- Pay-when-paid Clauses: Prohibited in construction contracts. Insolvency does not change this ban.
- Multi-Contract Adjudication: The Scheme (para 8) allows multiple disputes to be resolved by consent.
Strict adherence to these procedural rules ensures you retain your rights and avoid losing out due to missed deadlines.
Common Pitfalls and How to Avoid Them: Insolvency and Adjudication
Typical mistakes in construction adjudication during insolvency include:
- Failing to raise cross-claims or set-off defences. If not asserted during the adjudication, you risk an award for the claimed amount made against you.
- Missing tight statutory deadlines. The timetable is strict—usually 7 days for appointment and referral, and a standard 28-day decision period.
- Overlooking the commercial value of an unenforced award. Even where an award is not enforced immediately, it can help achieve a faster settlement or inform set-off.
Our Winning Approach to Construction Adjudication and Insolvency
Our solicitors at Go Legal have in-depth expertise in the intersection of construction adjudication and insolvency law across England and Wales. We provide:
- Complete front- and back-end strategy for both claimants and respondents, ensuring set-off and enforcement risks are anticipated and managed.
- Honest, practical advice about the realistic prospects of enforcement or defence, minimising your commercial risk.
- Relentless attention to statutory deadlines and compliance to ensure your rights are protected throughout.
- Hands-on support in assembling evidence, structuring cross-claims, and, when appropriate, guiding you towards mediation or alternative dispute resolution.
Whether you are a liquidator, contractor, creditor, or employer facing a construction adjudication with insolvency elements, we can help protect your interests at every stage.
Frequently Asked Questions
Can a company in liquidation start adjudication under a construction contract?
Yes. The Supreme Court in Bresco v Lonsdale [2020] UKSC 25 confirms that the right to adjudicate survives liquidation, even where insolvency set-off applies.
Will insolvency set-off always prevent enforcement of adjudication awards?
No. Enforcement may proceed if the net entitlement in the adjudication is clear and there are no substantial, unresolved cross-claims. However, contested or large cross-claims can lead to enforcement being refused or stayed by the court.
Is construction adjudication different from arbitration or litigation in insolvency?
Adjudication is usually much faster and less formal than litigation or arbitration. However, all three can be used to determine the value of claims and cross-claims for the set-off account in insolvency scenarios.
What steps should I take before starting or defending an adjudication involving insolvency?
Prepare all your supporting documents early, clearly raise any cross-claims, strictly observe all deadlines, and seek legal advice if complex issues arise.
Can an employer obtain a positive award for damages within the same adjudication?
Employers can put forward set-off and cross-claims as defences. However, to get a positive award, they usually need to start their own adjudication as the referring party.
What is the risk surrounding adjudicator’s fees if the other party is insolvent?
Adjudicator’s fees are joint and several liabilities, but the insolvent party’s share is treated as a liquidation expense and typically ranks ahead of other claims in the insolvency process.
Are “pay-when-paid” clauses valid if one party enters liquidation?
No. Section 113 of the Act prohibits pay-when-paid clauses in construction contracts, regardless of insolvency.
How quickly must parties act following an adjudication notice when insolvency is involved?
Both the appointment of the adjudicator and service of the Referral Notice must usually be completed within 7 days of the notice of adjudication.
Can I get an injunction to halt an adjudication started by a liquidator?
Almost never. Courts now only grant such injunctions in the most exceptional cases.
Who decides the value of cross-claims in insolvency-related disputes?
The adjudicator decides cross-claims raised in the adjudication. Any disputes not resolved there may be decided by the court or through the insolvency process.
Speak to a Construction Adjudication and Insolvency Solicitor
If you want expert guidance about construction adjudication and insolvency, our solicitors offer practical, realistic advice and strategic representation tailored to your situation. We help both liquidators and respondents navigate complex construction disputes, manage risks, and optimise outcomes under tight timelines.
Get Expert Help With Construction Adjudication and Insolvency
This guide has explained how companies in liquidation can start and pursue construction adjudication, even where set-off and cross-claims apply. The Supreme Court has made it clear that both liquidators and claimants may use adjudication to resolve disputes efficiently, and that respondents must engage with the process to protect their commercial interests.
Act quickly to meet strict deadlines, preserve your rights, and avoid common pitfalls in these disputes. To discuss how the law applies to your case, call us on 0207 459 4037 or book a free consultation.
