Can a Company in a CVA Enforce an Adjudication Award?

14 June 2019

In Indigo Projects London Ltd v Razin & Anor[1] the Court declined to enforce an adjudicator’s decision as it would interfere with the accounting exercise of Indigo’s Company Voluntary Arrangement (CVA).

Facts

 The Defendants engaged Indigo Projects London Ltd (Indigo) under a JCT Standard Building Contract (2011 Edition) to build a house. The Defendants contended that the works were delayed and extensively defective.

On 20 June 2018, Indigo issued an interim payment notice for the sum of £202,036.05. As the Defendants did not issue a timely ‘Pay Less Notice’, the sum notified in the interim payment notice fell due on 29 June 2018.  The Defendants failed to pay the whole sum, only making a partial payment of £30,000. Indigo commenced a so called ‘smash and grab’ adjudication in which the adjudicator decided that the Defendants should pay the unpaid balance of the interim payment notice together with the interest. The Defendants failed to pay and Indigo applied for summary judgment to enforce the adjudicator’s decision.

However, shortly after making the enforcement application, Indigo entered into a CVA. The CVA contained an express term that only the balance of cross-claims between Indigo and any of its creditors could be claimed by Indigo or the creditor under the CVA. The accounting or balancing exercise was due to be undertaken by the supervisors of the CVA. The Defendants, who argued that they also had counterclaims for delay and defective work (which would allegedly reduce the sum owed to nil), argued that enforcement of the adjudicator’s decision would interfere with the accounting process in the CVA.

The Court declined to enforce the adjudicator’s decision on the basis to do so would interfere with the accounting process to be carried out in the CVA.  Since payment of the sum owed would be made after Indigo entered into the CVA, the sum would form part of the general fund available for distribution amongst all of Indigo’s creditors and not just the Defendants. That would be detrimental to the Defendants and would interfere) with the intent and purpose of the CVA.

Comment

 This case is one of a number of recent cases highlighting the limitations of adjudication decisions where insolvency proceedings have been instigated by one of the parties.  In this case, the timing of the CVA was an important factor as enforcement would, in the words of the Court, “distort the process of accounting which is required”.  The position might have been different, however, if the underlying adjudication had dealt with Indigo’s claim and the Defendant’s counterclaims.  In that scenario, the adjudicator would have already determined the balance due between the parties in a manner consistent with the accounting process under the CVA.

[1] [2019] EWHC 1205 (TCC

Oliver Tobin Author
Oliver Tobin
Associate
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Chris Wilkinson Author
Chris Wilkinson
Trainee Solicitor
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