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Construction Law

CHAPTER 22 BANKRUPTCY AND INSOLVENCY Page 1634 Introduction 22.01 The financial stability of the parties to a construction or engineering contract is usually a matter that is critical to the success of the project. If an owner becomes financially embarrassed, and is unable to make payment to the contractor for work performed by it, the contractor may have grounds for suspending its works, or terminating the contract. Similarly if a contractor runs into financial difficulties, and is unable to continue the performance of its works, the owner may be entitled to terminate the relevant contract and find another contractor to complete the works. 1 Where money is owed under or in respect of a construction or engineering contract, and the money is not paid when it ought to have been paid, it may be open to the creditor to seek to recover the amount owed by bringing bankruptcy proceedings, if the debtor is an individual, or by instituting insolvency proceedings or taking other insolvency action, if the debtor is a company. Although not every project will be plagued by one or more party’s financial difficulties, it has rightly been observed that insolvency is “not an unknown phenomenon in the building industry”. 2

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