A couple who had a dispute with their housebuilder have fought off an application for their money to go into a general pot for the benefit of all creditors after the builder became insolvent.  The builder had entered into a Company Voluntary Arrangement (CVA) with its creditors in an attempt to trade itself out of difficulties.

Mr and Mrs Razin had appointed Indigo Projects London to build them a £2.3 million four-storey home.  There was a dispute about the quality of the work and delays in completion.  When Indigo issued an Interim Payment Notice for over £200,000 the Razins refused to pay in full and instead sent £30,000 on account.

As the Razins had not issued a Pay Less notice, Indigo took its claim to adjudication where it was awarded the full sum with interest.  When money was not forthcoming, Indigo applied to the court for enforcement of the Payment Notice.

At the same time, Indigo was suffering financial difficulties and soon after it applied for enforcement of the Payment Notice it entered a CVA with its creditors.

In court Mr and Mrs Razin made the point that their counter-claims against Indigo had not been heard.  They argued that if the adjudication award went into the CVA, it would be used to pay out other creditors and there would be no money left to reimburse them if their counter-claims were subsequently agreed.

In response Indigo argued that the adjudication award should be paid in full as it pre-dated the CVA.

The judge, Sir Anthony Edwards-Stuart, agreed with the Razins and dismissed the application to enforce the adjudication award.  He said that any payment into the CVA would “not be applied for the sole benefit of the defendants but instead for the benefits of the creditors generally.”

Sir Anthony’s decision differed from that in another recent case, Cannon Corporate v Primus Build, where the defendant was ordered to pay the adjudication award into the CVA.

The cases differed due to the adjudicators’ actual decisions. In the Cannon case the adjudicator was deciding on amounts after the claims and counter-claims had been decided.  In the Indigo case, the dispute was simply over the payment of the sum stipulated in the Payment Notice, and with the counter-claims unresolved.

These cases show that timing of events and exact details of adjudication awards are of critical importance in cases of insolvency,” said James Burgoyne, Director – Claims & Technical, Brunel Professions.  “These cases show that the Courts are willing to look beyond simple chronology, and are considering wider issues in reaching decisions.

Reports of the case have been published by Building, Hardwicke, Fenwick Elliott and the Practical Law Construction Blog.

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