Steel Construction Vol 40 No 3 - Mining, Industrial, Import/ Export | Page 41

SAISC LEADERSHIP AND MANAGEMENT Be careful who you contract with - you could pay back if your counterparty is liquidated By Taryn van Deventer, Senior Associate at MDA Consulting “Business closures of contractors in the construction industry are rising at a rate of five liquidations a month. Against this backdrop, contractors and sub-contractors are being warned that payments can be clawed back from them if their contracting counter-party winds up in liquidation and certain criteria are met.” Business closures of contractors in the construction industry are rising at a rate of five liquidations a month. Against this backdrop, contractors and sub-contractors are being warned that payments can be clawed back from them if their contracting counter-party winds up in liquidation and certain criteria are met. In addition, upfront payments to a contractor before the commencement of a project may be viewed by a liquidator as a payment made when the employer was in fact insolvent (de facto insolvent). This would allow the liquidator to unwind that upfront payment through the court. This situation is not uncommon and extends to work completed, invoiced and paid at a time when the debtor is insolvent on account of liabilities exceeding assets after making the payment if the intention was to prefer one creditor over others. The bottom line is that you need to be very careful with whom you choose to contract. Ensure that the business or individual is financially stable enough to fund the project, or has backing from a financial institution. If your contracting counterparty winds up in liquidation, the funds can be demanded from you if the requirements of Section 29 of the Insolvency Act are met. All that needs to be proven by the liquidator is that, at the time of making the payment, the debtor was in fact insolvent and the intention was to prefer the party receiving the funds over other creditors. One way to mitigate against this risk is to ensure that you are aware of the financial intricacies. Make sure you have done your due diligence on who is financing the project and whether there is a funding arrangement in place.You may want to consider requesting security for payment. Although standard form contracts don’t specifically cover such security, where you foresee risk, you should request payment security – subject, of course, to the commercial realities of making a deal and being appointed on a specific contract. Taryn completed her studies at Rhodes University. She is an admitted attorney and a member of the Law Society of the Northern Provinces. Taryn has a broad range of commercial and dispute resolution experience in both domestic and international construction and mining projects including general commercial advisory, specific contract negotiation and drafting, litigation, arbitration, mediation and settlement of disputes. Taryn has managed large-scale disputes from inception to settlement for entities listed on the JSE and internationally as well as large unlisted companies, advising on all aspects of dispute avoidance and resolution. Taryn joined MDA Consulting, a specialist commercial advisory practice in the construction environment, in 2014. Tel: [phone] [email protected] www.mdaconsulting.co.za Steel Construction Vol. 40 No. 3 2016 39