Is insolvency a breach of contract?

In most cases yes it normally is.  However for insolvency to be a breach of contract it does depend on what is actually written in any contract between the insolvency company and the customer.  For example, sometimes the terms of a contract state liquidation is a breach of contract but administration is not.

In more detail

Normally if there is a written contract between a company and a customer there will be a clause that covers what happens in the event of insolvency.  This will need to be reviewed to decide on the outcome which may be different for liquidation thank for administration or bankruptcy.

A property lease is a contract and often the lease will state insolvency gives the right to the landlord to forfeit the lease.

Another common situation is where a construction firm goes into liquidation.  The firm often has contracts with a main contractor in writing and these are contracts between the company and any construction clients or customers.  The contract will set out what happens in the event of insolvency and may include, for example, that the customer can find a new builder and charge the cost to the insolvent company – offsetting anything that remains to be paid to it.  It can also offset any final retentions that may be due.

If you need advice around contracts with customers or clients the earlier you talk to us the better as you will have more options. Call us today on 0800 331 7417 or complete the form below

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