Construction contracts: changes introduced by the Corporate Insolvency and Governance Act

3rd November 2020

The Corporate Insolvency and Governance Act 2020 (CIGA) came into effect on 26 June 2020, introducing significant changes to contracts for the supply of goods and services, including the majority, if not all, contracts for the supply of construction and engineering services.

The introduction of CIGA is one of the many preventative measures taken by the UK Government in an attempt to safeguard the economy in the wake of the global COVID-19 pandemic. Its primary purpose is to support continued trading throughout the pandemic and beyond.

What are the changes?

CIGA introduces a new section 233B into the Insolvency Act 1986. Section 233B make two important changes to contracts for the supply of goods and services:

  1. Suppliers of goods and services are prevented from exercising certain rights of termination against a ‘company’ that is going through a relevant insolvency procedure; and
  2. Suppliers must continue to supply goods and services even if they have not been paid for goods and services already delivered.

In the context of a construction contract, a supplier is likely to be one of the following:-

  • the contractor under a main contract (the client being the ‘company’);
  • a sub-contractor under a sub-contract (the main, or superior, contractor being the ‘company’);
  • a consultant under a professional appointment (the ‘company’ being the entity that has engaged the consultant).

It is also worth noting that CIGA creates two new insolvency procedures known as:

  1. Part A1 Moratorium; and
  2. Part 26A Restructuring Plan.

Our insolvency and business support lawyers answer questions on CIGA and look at the business rescue moratorium.

We also consider how contractual rights to terminate are affected by CIGA and what actions the construction supply chain can take to mitigate its effect.

This article is Part 1 of our three part series of construction articles and CIGA.

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