Kissing goodbye to your money? Creditors voluntary arrangements

I am much obliged to Alexander Dain of Contract & Construction Consultants, Bristol for sending me the High Court judgment in Mead General Building vs Dartmoor Properties. It ended up in court because Dartmoor would not obey the adjudicator’s decision to award Mead £347k. Dartmoor wanted a stay, a pause, on having to pay because Mead was subject to a company voluntary arrangement (CVA) with its creditors.

Mead had agreed to build a housing development in Oakhampton, Devon, under the JCT Intermediate Form. A dispute then arose and Peter Simpson, a RICS adjudicator, was called in to decide it. He ordered Dartmoor to pay up.

Dartmoor’s managing director replied that he was wrong. He was wrong to award an extension of 27 weeks and wrong to order that 23 of those weeks carried loss and expense. Dartmoor said it intended to overturn these decisions in arbitration. The snag was that if Mead was in serious financial straits, and the arbitrator reversed the adjudicator, then there was a danger that it would be unable to repay the award.

The judge had no truck with the complaint that the adjudicator had made the wrong decision. “The paying party will often complain that the adjudicator has awarded too much or should have awarded nothing at all.” All that has to wait until the arbitration. As to the CVA, the judge asked if any other adjudication case had come to the High Court asking for a stay? No. This is the only one.

The mere fact of the CVA is not enough to imply that Mead would be unable to repay an award by the arbitrator once the case is reheard. Instead, look at its trading position

There has been a case where the successful party in the adjudication later went into insolvent liquidation. In that case, the insolvency rules operated to prevent judgment. In the case of a company in administrative receivership, judgment can be entered, but not if the facts indicate that the party would not be able to repay any sums.

So, what effect does a CVA have? The mere fact that it is in existence does not by itself imply that Mead will be unable to repay an award, should the arbitrator so decide. Instead, it is necessary to look at the circumstances of the CVA and Mead’s current trading position. For example, it may well be that Mead’s problems were the result of Dartmoor’s failure to pay the sums awarded.

Credit: Simone Lia

So, what’s the score here? Mead is a relatively small company. Its £1.6m contract with Dartmoor was its principal turnover, and when Dartmoor started to pay less than was being claimed and sometimes paid nothing at all, Mead’s financial difficulties began. Mead’s accountant gave that evidence and the builder’s managing director also explained how he had told his suppliers and subcontractors and other creditors what trouble he was having. He assured them that Mead had good prospects, provided Dartmoor would pay up. When a CVA is agreed, there is an independent supervisor. He concluded that Mead had a good prospect of success. So, the likely future for this small outfit is that it will be able continue to trade successfully.

The judge decided that Dartmoor should pay up the whole of the £347k, plus interest at 8% since the award date. Mead’s financial troubles, he said, had been directly caused by Dartmoor’s failure to pay the award and its failure to pay sums due. Mead could trade its way out of its difficulties, so there was no reason to believe that it would not pay back some or all of the £347k if an arbitrator says they were overpaid.

It may well be that Mead’s problems were the result of Dartmoor’s failure to pay the sums awarded

Let me mention one sting in the tail and make one challenge. Mead was awarded the costs of having to come to court to enforce. Those were just short of £20,000, but the judge would only award £15,000. The reason was that he was presented with three lever-arch files of information. Too much, he said. The only worthwhile point was the application to stay because of the CVA. So he detected unnecessary costs. I bet Mead’s advisers were covering all bases because their opponent was not represented. Second-guessing what’s going to happen makes life difficult.

As for the challenge, it’s this. If this matter is going to go on to an arbitrator, let’s make it move at a swift pace, shall we? The original payer Dartmoor will not want to drag its feet. The payee will be fed up. The arguments are well rehearsed. Time? One month. I mean it.