Lessons for clients using project bank accounts following a recent insolvency

Project bank accounts, or PBAs, are designed to protect supply chain members by ring-fencing project funds in a trust account, particularly where a main contractor becomes insolvent. In Wales, PBAs are mandatory for all publicly funded projects valued at £2 million and over.

However, a recent Northern Irish matter involving Extraspace Solutions (UK) Limited (in administration) and EY-Parthenon has highlighted that PBAs are not immune from risk if they are not executed and monitored properly. The case provides a timely reminder for clients that the protective purpose of a PBA depends not only on having one in place, but on ensuring it operates effectively throughout the life of the project.

What happened?

The company entered administration on 23 September 2024. Before the administrators were appointed, the company had been the sole trustee of the PBA. The administrators then had to deal with a PBA containing approximately £1.3 million for suppliers working on prison contracts for the Ministry of Justice.

It appears that the company’s records were unclear what sums were owed from the PBA to the supply chain and owed to the company. As a result, the administrators applied to the court in Northern Ireland for approval of a proposed scheme of distribution.

The court approved that scheme on 26 May 2026. Under the scheme, certain costs and expenses connected with distributing the PBA funds and discharging the company’s duties as trustee would be paid first. Only after those costs were met would any surplus be available to supply chain members for their work on the project. If there were insufficient funds to meet the supply chain claims, those claims would become unsecured claims in the administration or any later liquidation.

In practical terms, the administrators’ fees and other expenses, including legal fees, were given priority over payments to the supply chain under the scheme.

Why does this matter for clients?

The outcome sits uneasily with the purpose of PBAs, which is to protect the supply chain if the main contractor becomes insolvent. Although the order was made by a court in Northern Ireland and is not binding in England and Wales, it may be persuasive where similar facts arise. It may also encourage insolvency practitioners to consider whether their fees can be recovered from PBA funds in circumstances where they might not previously have done so.

For clients, the key lesson is clear: a PBA should not be treated as a tick-box requirement. Its effectiveness depends on careful drafting, proper execution, clear records and ongoing oversight.

Lesson one: think carefully before leaving the contractor as sole trustee

One of the key features of the recent matter was that the contractor had been the sole trustee of the PBA before entering administration. Once administrators were appointed, they had greater authority to decide how the supply chain funds should be treated.

Clients should consider whether a joint trustee structure would provide greater protection. If the Ministry of Justice been appointed as a second trustee before the company entered administration, it may have been in a better position to influence the treatment of the supply chain.

This is particularly relevant in Wales, where the Welsh Government model social clauses require both the public sector client and main contractor to be parties to the PBA Trust Deed. While creating more work, that structure gives the client greater visibility over the PBA and may help enhance protection for supply chain funds in a contractor insolvency.

Lesson two: make sure the PBA documents are properly executed

The existence of PBA documents is not enough. They must be executed correctly.

If the trust deed is not executed properly, the trust will not be created. Similarly, supply chain members’ rights depend on them signing the joining deed correctly.

While it is usually the contractor’s responsibility to ensure the supply chain joins the PBA, clients should not assume this has been done correctly. Project managers can play an important role by checking that valid execution has taken place, helping to ensure that the trust is properly created and that supply chain members can benefit from it.

Lesson three: do not overlook records and administration

The recent matter also underlines the importance of clear, accurate and up-to-date records. The administrators were faced with uncertainty as to whom the monies were due. That uncertainty was one of the reasons that court approval was sought for the proposed scheme of distribution.

For clients, this demonstrates the importance of ensuring there is proper reporting and administration throughout the project. PBAs should be actively managed, not simply created at the start of a project and then left unchecked.

Clients may wish to improve the level of reporting on PBA management in monthly progress meetings so that any gaps or issues can be identified early. This may include checking whether supply chain members have joined the PBA, whether records are accurate and whether payments are being administered in accordance with the trust arrangements.

Lesson four: treat PBAs as an ongoing governance issue

The overarching lesson is that PBAs require active governance. A properly structured PBA can provide important protection, but the recent insolvency scenario shows that clients should pay close attention to who controls the account, whether the trust structure has been properly created, whether the supply chain has validly joined, and whether the records support clear distribution of funds if insolvency occurs.

The Northern Irish order does not bind courts in England and Wales, but it is a warning that PBA funds may be vulnerable to unexpected competing claims where the documentation, administration or oversight is unclear.

Practical steps for clients

Clients using PBAs should consider:

whether the client should be appointed as a joint trustee, rather than leaving the contractor as sole trustee;
whether the trust deed and all joining deeds have been properly executed;
whether project managers are checking that the supply chain has validly joined the PBA;
whether PBA reporting is included in regular project meetings.

How Blake Morgan can help

PBAs remain an important tool for protecting supply chain payments, particularly on public sector projects and major construction contracts. However, their effectiveness depends on proper setup, execution and oversight.

If you require assistance with setting up or administering your PBA, or would like to review whether your existing arrangements provide sufficient protection, please get in touch.