Coping with Connaught

‬As Connaught Plc enters administration, Ed Husband looks at how this is likely to affect local authorities and social landlords and how they can respond‬

It has been reported that the social housing business of Connaught Plc together with other subsidiaries is on the brink of being placed into administration, with KPMG to be appointed as administrators.

Connaught is one of the UK’s leading integrated services providers, specialising in, amongst other things, the provision of property management and maintenance services principally to the social housing and local authority sectors.

What is administration?

Administration is the form of company insolvency procedure most commonly used by banks and other secured creditors. It is distinct from other forms of insolvency procedure because its primary aim is the rescue of the company as a going concern (whether in whole or in part). If that primary objective cannot be achieved, the administrators are required to seek to achieve a better result for creditors as a whole than if the company was placed into liquidation.

Given the priority afforded to the survival of the company as a going concern, the administrators have extensive powers as agents of the company. This includes the power to continue trading the company in order to preserve value in any ongoing contracts as well as powers to enter into future contracts on behalf of the company and to protect and realise company assets by, for example, bringing and defending legal claims. It is also important to note that on the appointment of administrators, there is a moratorium preventing any legal claims against the company without the consent of the administrators or the leave of the Court.

How will Connaught’s administration impact on its continuity of service?

A number of local authorities have ongoing contracts with Connaught for the provision of property maintenance and related services in relation to a wide variety of public buildings including schools, leisure centres, offices, libraries and care homes.

Although it is likely that the administrators will have spent considerable time pre-appointment considering the future viability of the business, it is inevitable that following a large scale administration, there will be some disruption to the provision of existing services whilst the administrators assess the viability and profitability of those contracts.

Early contact should be therefore be established with the administrators or their staff to establish what they intend to do in relation to those contracts. Broadly, they will have to consider whether to continue to comply with those obligations (with a view, in all likelihood, to transferring them to another purchaser) or to allow the company to breach its obligations in the event that those contracts are unprofitable. The administrators will assess each contract on an individual basis to assess its profitability. We are monitoring what is happening closely to ensure as soon as the administrators are appointed we can make contact with them on behalf our clients and advise on next steps

Can you terminate your existing contract with Connaught?

Connaught’s administration will not, in itself, bring your current contract to an end or necessarily entitle you to terminate the contract.

You will only be entitled to do this in the event that: (a) the contract specifically provides for this (i.e. there is an insolvency event clause); or (b) if Connaught cannot perform the contract and is thereby in material breach. Whilst a company’s administration might be used as evidence of an inability to comply with its obligations under a contract, as a company in administration can continue to trade it is important to take legal advice before taking any steps to terminate a contract.

Can you require Connaught to comply with its contractual obligations?

No. Save in exceptional circumstances, a Court will not order specific performance of an agreement where the defaulting party is in administration.

Can you object to the sale of your contract to a third party?

It may be possible to object to the sale of your existing contract to a third party if you would prefer services to be provided by another contractor. However, this will depend both on the existing contractual terms relating to assignment and termination. Your consent will typically be required if all rights and obligations are to be novated to a third party.

Can you withhold payment from Connaught?

Whilst Connaught’s administration will not, in itself, entitle you to withhold sums properly due and owing, there may be express provisions in the contract which will entitle you to withhold payment following Connaught's administration and/or other events of default. If so, it will be important to ensure that the necessary contractual provisions are complied with. In the absence of an express entitlement to withhold payment in the contract, you may wish to consider withholding amounts due to Connaught where it is anticipated that you will suffer or incur losses caused by Connaught.

As this may constitute a deliberate breach of contract, it will be important to seek legal advice before taking this action as this could have adverse consequences which would need to be considered on a contract by contract basis.

Ed Husband is a Commercial Dispute Resolution Partner at Bevan Brittan LLP