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Businesses should understand the ‘red flags’ of insolvencies to prevent a debt from either occurring, or escalating. Some signs that a business may be in financial distress include:
Subcontractors should take the following steps to minimise the risk of working with a business that may be in financial trouble:
During any project, it is important that you perform the works in accordance with the terms of contract. This includes making sure that any change to the scope of works is confirmed in writing and in accordance with the variation requirements of the contract. By following the correct contract procedures, you will minimise your risk of non-payment arising from the completion of works that were not a part of the original scope of works.
Sometimes you may need to take action such as issuing a notice of suspension of works if your head contractor does not make payment. This not only sends a strong signal regarding how you respond to such action but also prevents you incurring further cost associated with continuing with the work.
Most contracts contain a right to charge interest on any overdue amounts from the due date until the date of payment. Additionally, you may be able to recover any legal costs incurred as a result of the non-payment (for example, in the event you need to commence legal proceedings).
Unfortunately, sometimes parties may need to terminate a contract because they are no longer financially able to proceed with the contract. Parties may mutually agree to terminate a contract, and in which case they are able to agree to the terms of the termination.
Read more about mutual termination of contracts.
HIA contracts include clauses which allow one party to terminate if the other party is subject to an insolvency event. However, there are laws in place which may prevent a party from enforcing these types of clauses for a period of time. This is to allow the party who is facing insolvency to attempt to trade their way out of trouble.
You should immediately seek legal advice if you become aware that your client or contractor is:
Parties can still rely on termination for insolvency clauses where it relates to personal insolvencies.
A contract can be terminated where the other party is facing an insolvency event, provided that there is another legitimate termination right or breach of contract.
However, HIA strongly advises that legal advice should be sought prior to taking steps under a termination clause including a termination for insolvency clause.
When you have finished the project, it is important that you are following your contract administration processes, including issuing your tax invoices and following up payment in a timely manner. Where necessary, in the event of non-payment there are a number of options available, including:
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