Insolvency & Bankruptcy

Question 1

What is insolvency?

Answer 1

• The inability to pay off debts or creditors
• Term insolvency is often generic used to describe bankruptcy, liquidation, administration

Question 2

Why would you not recommend the appointment of a contractor with low credit rating?

Answer 2

• Risk of contractor or supply chain insolvency
• Possibility of contractor not performing satisfactory or restricted resources on site

Question 3

How could you determine the financial standing of a company prior to doing business?

Answer 3

A Dun & Bradstreet report creates a business credit report that could be viewed like a personal credit report for businesses

Question 4

What are signs of contractor insolvency on a construction project?

Answer 4

• Slowing down works
• Supply of materials drying up
• Increase in defective work
• Changes in management
• Additional or inflated payment request
• Complaints from subcontractors

Question 5

Under what circumstances might a QS encounter insolvency?

Answer 5

• Project you’re working on may have a contractor or subcontractor with financial difficulties which means they cannot pay debts
• May be approached by client who has project where contractor has ceased trading and needs advice
• Could be appointed by an external body to prepare a report on a commercial aspect of the project

Question 6

What steps would you take in the event of insolvency?

Answer 6

• Inform all parties involved
• Inform the bondsman (bank / insurance company)
• Stop any pending payment (can defend on ground of counter claim for costs)
• Secure site
• Take ownership of materials off site (if paid for in vals)
• Schedule all plant and materials
• Value completed works and value defects
• Monitor loss and expense incurred by employer
• Terminate building contract and employ others to complete

Question 7

What is liquidation?

Answer 7

In its simplest form liquidation is a formal process which brings about the closure of a limited company. As part of the process all company assets will be sold - or ‘liquidated’ - for the benefit from the register held at Companies house

Question 8

Difference between administration and liquidation?

Answer 8

• Administration: where someone is appointed to manage the company’s affairs on behalf of the creditors
• Liquidation: Involves shutting down of a company and selling off the asses to pay off the creditors

Question 9

What is bankruptcy?

Answer 9

One way for individuals to deal with debts they cannot pay. Does not apply to companies or partnerships

• Assets shared among those you owe money to (creditors)
• Allows the individual to make fresh start free from debt (some restrictions)