The TCC Opens the Door (Slightly) for Adjudication Proceedings by Companies in Liquidation By Kathryn Moffett, Matthre Taylor & Rita Lowe A recent TCC decision has provided further guidance on a liquidator’s options when seeking payments owed to insolvent companies through adjudication and the interplay with the Insolvency Rules. The decision establishes an exception to the general principle that such adjudication proceedings will not be enforced (and are liable to be injuncted) where the responding party has a cross-claim. The exception focuses on the provision of adequate security by the company in liquidation and the absence of any abuse of process where such claims are to be pursued by third parties on the liquidator’s behalf in exchange for a share of the proceeds. Adjudication proceedings by companies in liquidation: a recap of the current position Under the Insolvency (England and Wales) Rules 2016 (the “Insolvency Rules”), a mandatory set-off takes effect upon a company’s entry into liquidation. The set-off applies where there have been mutual dealings between the company and a creditor. The effect of the rule is to net-off those dealings so that only the balance is provable in the liquidation. The rule is an exception to the pari passu principle (i.e. equal treatment) as the set-off provides the creditor with a full recovery of part of its claim. Without the rule, the creditor would be obliged to make full payment of any amounts owed to the company, whilst only being able prove in the liquidation for its own claims. If the dividend from the liquidation is small, the creditor could well be required to pay more into the liquidation than it would receive in return despite the fact that its claims against the company exceed the company’s claims against it. Insolvency set-off takes place automatically upon liquidation and overrides all other set-offs or contract terms to the contrary. In addition, the parties cannot contract out of insolvency set-off nor waive its operation. The interaction between the Insolvency Rules and construction adjudication was considered recently by the TCC in Lonsdale v Bresco and then on appeal. Please see our Law Nows available here and here for more detail on those decisions. In summary, the TCC initially held that mandatory set-off under the Insolvency Rules deprived an adjudicator of any jurisdiction to determine disputes under a construction contract involving the company in liquidation. The Court of Appeal overruled this finding, considering that adjudications could still be validly commenced by companies in liquidation, but agreed that there was a basic incompatibility between adjudication and the Insolvency Rules. This was reflected in previous cases which have held that the court will not, save in exceptional circumstances, enforce adjudication decisions in favour of companies in liquidation where the responding party has a cross-claim. To do so would force the responding party to pay the amount of the adjudication decision, while being left to prove in the liquidation for its cross claim