Cheque's in the Post? A Small Builder's Survival Guide to Client Insolvency

The email lands at 4:47pm on a Friday: 'Further to recent developments, the company has appointed administrators.' If you are mid-project, that is not just a cash-flow hiccup. It is a race — and the builders who keep their heads tend to be the ones who already know what to do before the call comes.

This is general information, not legal advice. Insolvency is messy, contracts differ and timing matters, so take advice from a construction solicitor or an insolvency practitioner early. But there is plenty you can do yourself to avoid making a bad situation worse.

First, don't confuse a slow payer with a dead company

Plenty of clients pay late. That is annoying, not necessarily terminal. Insolvency is different: the company cannot pay its debts as they fall due, or it is entering administration, liquidation or a company voluntary arrangement. The practical clue is usually a pattern, not a single missed payment.

Watch for repeated 'the cheque run is next week' promises, sudden changes in quantity surveyor or site manager, unexplained visits from people in suits, retention being held back without a clear reason, and requests to 'keep going and we'll sort the paperwork later'. Check Companies House for filed accounts, director changes and negative net assets. Check The Gazette for winding-up petitions and statutory demands. If you have credit insurance or a trade credit account, ask your provider what they are hearing.

None of those signs prove a company is about to fail. But they are a good prompt to tighten up your own paperwork, get valuations signed off promptly and stop letting unpaid work stack up.

If it happens: protect the paper trail first

When the appointment is confirmed, resist the urge to ring everyone and shout. Start a file. Download the appointment notice, save the administrator's details, and print off every relevant document: contract, purchase order, valuations, applications for payment, invoices, delivery notes, timesheets, variation instructions, site diaries, emails and photographs.

Then send a short, calm written notice to the client and the administrator. Confirm the date you became aware of the appointment, state that you are reserving your rights, and ask for written confirmation of the administrator's appointment and their position on the contract. Keep it factual. Do not speculate about who owes what in an email that could later be read out in a meeting.

If you have a contract with a suspension or termination clause, read it before you announce anything. JCT and similar forms often set out what happens on insolvency, but the wording matters. If there is no clear right to stop, get advice before you down tools. Continuing to work when you are unlikely to be paid can increase your exposure; stopping without a contractual right can create a different problem.

Can you just walk off site?

Not automatically. The safe route is usually a written notice that relies on the contract, not a text message saying you are 'done'. If the contract gives you a right to suspend or terminate on insolvency, use it properly. If it does not, ask a solicitor whether you can suspend for non-payment or whether continuing is the lesser evil.

Either way, secure the site. Lock containers, recover your own small tools, and make a list of plant and materials you own. Do not remove items that may belong to the client or a hire company. If you have hired plant on site, tell the hire company immediately and follow their instructions. Take photographs of what is there and get signatures where you can.

Materials, plant and the title question

This is where builders often lose money quietly. Materials delivered to site may have passed into the client's ownership, depending on the contract and any vesting clause. Your plant is usually yours, but possession is not the same as title. If someone else is now controlling the site, you need the administrator's agreement to remove your kit — or legal advice if they refuse.

Keep a simple asset list: item, serial number, value, location, proof of ownership. If you supplied materials that have not been fixed, check whether your terms of sale include a retention of title clause. Those clauses are not magic, but they can help. Again: paperwork first, muscle second.

Tell your insurer — and don't delay

If you carry contract works, plant, public liability or credit insurance, notify your insurer or broker promptly. Some policies require 'immediate' notification of circumstances that could lead to a claim. Late notice can give an insurer a reason to push back. If you have credit insurance covering the client, check the policy conditions before you agree to any administrator's request to keep working.

Also tell your accountant. A bad debt affects your VAT, your corporation tax position and your cash-flow forecast. If you are owed money by a company in administration, you may be able to claim bad debt relief on VAT in certain circumstances. Your accountant will know whether it applies to your situation.

Dealing with the administrator without losing your shirt

Administrators are not there to be your friend, but they are usually practical people. They want to know what is owed, what assets exist and whether the job can be sold or completed. Be cooperative, but be careful about agreeing to carry on working. Do not continue on a handshake. If the administrator wants you to finish the job, ask for a new contract, a clear payment schedule and ideally a personal guarantee or funds held in escrow. Get it in writing before you send anyone back to site.

Register your claim properly. Ask for the proof of debt form, submit it with supporting documents and keep a copy. Do not inflate your claim — administrators and courts notice. If you have retention money held by the client, check the contract for any trust wording. In many cases retention is treated as an unsecured claim, which means you may get pennies in the pound, if anything. If you have a dispute about the value of your work, adjudication may still be an option under the Construction Act, but take advice before spending money on a process that may be difficult to enforce against a company in administration.

What about CIS?

CIS deductions are a tax mechanism, not a magic recovery route. If you are a subcontractor and the contractor has deducted CIS from your payments, keep your CIS statements and check your records against HMRC. If the contractor has gone under owing you money, CIS does not turn that debt into a guaranteed payout. If you are the contractor and you owe CIS to HMRC, that is a separate liability and needs urgent advice.

The first 48 hours

In short: save every document, read your contract, send a reserved-rights notice, secure your plant and materials, notify your insurer and accountant, and get the administrator's details in writing. Then take advice before you agree to anything that commits more of your time or money.

The best time to prepare for a client insolvency is before it happens. Run credit checks on larger clients, avoid letting unpaid valuations stack up, and make sure your contract has a clear payment and suspension clause. A few hours of groundwork now can save you a very long winter later.