In a brutal week for many in the finishes and interiors sector supply chain high-profile London sites have been closed as Ardmore Construction Group entered administration and Zentia (formely Armstrong Ceilings) closed their doors. We look at how members need to react below.
What is administration?
Administration is when a company is given legal protection from creditors while an appointed administrator attempts to rescue the business or achieve a better outcome for creditors than liquidation would provide. During this time, creditors generally cannot pursue claims against the company without court permission. These two cases of administration will impact the supply chain in different ways so we have provided specific information below.
Support associated with any financial implication in either case is provided at the end of the article.
Ardmore Construction Group
More than 500 staff are expected to be affected by the collapse of the business. The business has had a long and drawn out court battle following concerns over possible liabilities linked to legacy residential projects undermined its ability to secure new work triggered a cash flow crunch. It is a significant test case for the Building Liability Order brought in through the Building Safety Act.
Businesses affected include Ardmore Major Projects, Ardmore Hotels & Commercial, Ardmore Regeneration, Ardmore Fitout and Landmark Facades. Ardmore was working on around 10 major projects across London and clients are now working to engage replacement contractors to complete schemes.
How to proceed if you have been impacted by the collapse of Ardmore:
It’s important to note that in cases like this, immediate payments to creditors are rare, except in exceptional circumstances. Most creditors will need to wait for the administration process to be completed, which can take time. Therefore, it’s crucial to manage expectations regarding cash flow.
If you believe you have exposure to Ardmore Construction Group, we would advise the following immediate actions:
Review your contracts. A key thing to look for is whether the contract is a Collateral Warranties, these are used to bridge the contractual gap and create a direct contractual link for the benefit of those parties that may otherwise have no recourse. Some collateral warranties can also contain ‘step-in’ rights which effectively allow the beneficiary to step in to the underlying contract and issue instructions. Under a simple contract should the main contractor of a project fall into insolvency the subcontractor will be under no contractual obligation to accept instructions from the employer to complete the works given there exists no contractual relationship. The use of a collateral warranty in this instance creates a direct contractual link allowing the employer to give instructions to the subcontractor, ensuring completion of the latter’s obligations is achieved.
Assess any ongoing work: determine the stage of each project and identify any outstanding deliverables. Submit any outstanding applications.
Document all work completed to date. Take detailed photographs, videos and notes as this documentation will be crucial for any future claims or negotiations.
Recovering Tools, Plant and Materials. The retrieval of equipment and / or materials will not be a matter for the Administrators and should be arranged directly between customers and any applicable contractor. Contact should be made with the client to arrange a time to visit your project sites to retrieve any tools, equipment or materials that belong to you. Ensure you have documented proof of ownership for any assets you remove to prevent any disputes – this is particularly the case with materials where ownership may be less clear. Additional guidance covering what to do with materials stored on site.
Do not pursue unauthorised actions such as attempting to remove materials or equipment that are not legally yours. Also, ensure you do not cause any damage to the sites or completed works.
Prepare your financial records by compiling a comprehensive list of all outstanding invoices, including amounts due, due dates and any retention sums. Keep records of all communications and transactions related to your projects for reference.
Get a grip on Cash flow: Do a detailed cashflow forecast, given the likely delays and possibility of defaulted payments, consider all your options and GET PROFESSIONAL HELP if required. Through your membership of FIS you have access to specialist financial advice and BABR have offered additional interim advice here.
Renegotiations: Speak to other clients and suppliers to potentially renegotiate payment terms or request upfront payments to help cover any cash flow gaps.
Clients will hopefully be looking to appoint a contractor to replace Ardmore Construction and what the intention is to honour any payments for work completed by the client.
How will step-in rights be managed: Step in rights are usually drafted to give the beneficiary (often the employer or a funder) the right to step in at its option into the contractor’s shoes in the building contract. The employer doesn’t have to and may seek alternative options as it exposes the party stepping in to take responsibility for outstanding payments to the party providing the warranty and also the responsibility of being the contractor.
As an alternative, it is common for arrangements to be made (with agreement of all the parties including the contractor and its insolvency providers) to make direct payment to the subcontractors. In this case new direct contracts between the employer and the subcontractors or between the replacement contractor and the subcontractors may be presented. These are likely to be similar terms, but not necessarily identical terms, to the original subcontracts. Any agreement for outstanding payment and arrangement with respect to warranties would be covered in this appointment. If you have had design input, be clear on any Intellectual Property (IP) that will be taken forward in the project. Ensure that you have not ceded rights in your contract with Ardmore Construction Group.
Re-tendering work: If you are asked to re-tender ensure this takes into account any IP related input that you may have had on the project and assumptions are emphasised in your tender documents.
Ensure that you are clear on the contractual terms for any reappointment: don’t assume they will be the same or even that the contracts won’t be terminated and work re-tendered. Check the wording of any contracts for onerous high-risk clauses. Be particularly watchful of any change in design responsibilities or compliance clauses, and that you are not taking any responsibility for any design work carried out by another contractors. FIS contract reviewers are offering additional pro bono support to members impacted by the failure of Ardmore Construction Group. Additional advice on the novation process.
Collateral Warranties, caution advised: If you are asked to sign a Collateral Warranty ensure that you get legal advice (you can access free legal advice via the FIS Helpline). Sometimes contractors ask for these at a later date (if obligation is not in the contract) and there may be commercial reasons why a subcontractor would still be prepared to provide a collateral warranty (or may ask for extra payment for doing so) but you are not obliged to do so. Remember this gives a third party a contractual right to bring a claim against you for breach of your contractual obligations. Without a collateral warranty there is no direct contractual link.
Timings: Ensure that you have a clear understanding of when the expected recommencement date is and factor this into your pricing accordingly.
Status of woks: Make sure that any previous works are inspected and any defects identified. Even if it is your work, things may have changed since you left the site.
Managing Risk: Remember it is appropriate to seek reassurance that the funding is in place to complete the project and if any bonds or project bank accounts are being deployed to protect the supply chain. FIS members can access free credit checks email FIS team for a one-off or access to the portal. info@thefos.org
If you are unsure – check. FIS offers access to expert legal advisors, consultants, contract reviewers and financial advisors – many of whom have offered pro bono support to members impacted by the failure of Ardmore Construction Group.
Zentia Limited
Acoustic ceiling manufacturer Zentia has entered administration, resulting in the loss of 170 jobs, with its Gateshead-based entities Zentia Limited and Zentia Profiles previously generating a combined turnover of more than £50 million.
How to proceed if you have been impacted by the Zentia administration:
With respect to companies impacted by Zentia, FIS has been consulting with legal advisors and will get a more detailed guidance out on Monday.
Principal areas of concern involve the availability of alternatives, warranty considerations, the impact on design and design liability and any associated cost of delays.
In the interim, members are reminded that If the replacement product offers the same standard of performance and doesn’t result in a change of design, notification of change in specification is still important. Any change should be approved through the proper process (through Designers and Principal Designers) as per contractual conditions,
If the project is being undertaken in a Higher Risk Building it may be either a notifiable matter or a full change control request if it could be considered a major change under Reg 26(1)(a) and (b) HRB Procedures Regs. There is a long prescriptive list that automatically classify the matter as a major change. A Fire Rated Ceiling would likely be considered a major change as it would be considered “a change to any part of the active fire safety measures or passive fire safety measures”.
For more detail on what constitutes a major or notifiable change and how to manage the process accordingly click here.
Early consultation with client is essential. See FIS website on Monday for further details.
Financial Advice and Support
If you are negatively impacted and help navigating the financial impact on you or your business The Money Advice Trust is a charity which helps prevent financial difficulty and removes problem debt from people’s lives.
The charity runs National Debtline and Business Debtline, providing free, impartial and expert advice by phone, webchat and online.
National Debtline: 0808 808 4000 | www.nationaldebtline.org
Business Debtline: 0800 197 6026 | www.businessdebtline.org
If you have been affected by collapse of Ardmore Construction Group, The Money Advice Trust is available to support individuals to prevent financial difficulty and remove problem debt from people’s lives. More details and how to access advice is given below.
About the Money Advice Trust
- The Money Advice Trust is a charity which helps prevent financial difficulty and removes problem debt from people’s lives.
- The charity runs National Debtline and Business Debtline, providing free, impartial and expert advice by phone, webchat and online.
- National Debtline: 0808 808 4000 | www.nationaldebtline.org
- Business Debtline: 0800 197 6026 | www.businessdebtline.org
Specialist FIS Helpline for financial matters
FIS has a telephone helpline established for businesses in distress or requiring advice on finance, payment or insolvency matters, this is delivered through legal advisors in terms of general advice and specific support is available via payment, finance and insolvency experts BABR, for more details click here.
If you have been impacted, please do contact FIS on 0121 707 0077 or email iainmcilwee@thefis.org with outline details and we’ll do what we can. We are here to help.