CVAs and Stays

Can a Creditors Voluntary Arrangement (CVA) lead to a stay in the enforcement of an adjudicator’s decision?

In January of this year the Court of Appeal refused to stay enforcement of an adjudication award due to a CVA ((1838) Cannon Corporate Limited v Primus Build Limited [2019] EWCA Civ 27).  Four months later another enforcement decision against a company subject to a CVA came before the Technology and Construction Court (TCC).  This time a stay was granted – so what was the difference?

Indigo Projects London Limited v Razin and another [2019] EWHC 1205 (TCC)

In 2017 the Defendants employed the Claimants to construct a new 4-storey detached house in Kingston-upon-Thames.  The contract between the parties was a JCT 2011 Standard Building Contract With Quantities, so contractual adjudication was permitted.

On 20 June 2018 the Claimant issued an interim payment notice in the sum of £202,036.05.  The Defendants failed to issue a pay less notice and so the full amount became due on 29 June 2018.  The Defendants told the Claimant that they could not pay the full amount, but did make payment of £30,000 on 19 September 2018.

Subsequent discussions brought no resolution, so on 29 November 2018 the Claimant issued an adjudication to recover the remaining £172,036.05.  The adjudicator awarded the full sum to the Claimant, along with interest.  The Defendants paid the adjudicator’s fees, but did not pay the awarded sum.

On 24 January 2019 the Claimant issued enforcement proceedings in the TCC.  After the proceedings were commenced, the Claimant entered into a CVA with its creditors.  When the Defendants became aware of this they sought a stay of enforcement.  The judge, Sir Anthony Edwards-Stuart, granted the stay.

Why was the stay granted?

The judge drew two key distinctions between Cannon and Indigo:

1. the timing of the CVA; and
2. the nature of the claim.

In Cannon the CVA had been entered into prior to the adjudication that was being enforced.  This meant that any sums recovered would always have formed part of the distribution to creditors.  In Indigo, as the debt had arisen prior to the CVA, it should have been part of the netting off exercise between the parties.  Any failure to grant the stay would, therefore, be harsh on the Defendants.

A further distinction was that in Cannon the proceedings related to sums due as damages.  In Indigo the amount due was not a true value of works undertaken, but a default sum due to a missed notice. It was, in essence, “…nothing more than an order for payment on account … So the Supervisors [of the CVA] would simply have noted the existence of the decision and moved on to an assessment of the parties’ claims and cross-claims.”

Comment

The Indigo decision continues the line of authority flowing from the earlier decisions of Bouyges v Dahl-Jensen [2001] All ER (Comm) 1041 and Westshield v Whitehouse [2014] Bus LR 268.  There is a distinct difference between claims arising prior to an insolvency, which will form part of the netting off exercise between the parties when the insolvency arises, and claims brought after the insolvency, which form part of the funds in the insolvency for distribution. 

A stay may be granted where sums which should have been part of a netting off exercise would, on enforcement, become part of the general funds available for all creditors.  Such a situation could prejudice a party as it would, if paid over into the insolvency, only receive the pro-rata value of its claim.  In this way the decision is perhaps not surprising. 

Of potentially more interest, however, is that the Indigo case shows the Court’s view on smash and grab adjudications.  The sums due in such an adjudication are really only “…an order for payment on account…”  Thus in an insolvency, such a decision may be worth very little.