Henry Construction Projects Ltd v Promep Ltd

Hearing dates: 16 March 2023; 23 May 2023

Approved Judgment

This judgment was handed down remotely at 10.30am on 16 th July 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

These proceedings concern Part 7 proceedings in which there is an application for enforcement of an adjudicator's decision by way of summary judgment, in which ProMEP Limited (“ProMep”) is the claimant and Henry Construction Projects Limited (“Henry”) is the defendant and a corresponding Part 8 claim in which the roles are reversed.

ProMep is an M&E contractor and over a period of about 4 years was engaged as a subcontractor by Henry on a number of projects with a total value of around £68 million.

ProMep and Henry entered into a contract incorporating the JCT DBSub/C 2016 form with amendments. Henry engaged ProMep as sub-contractor for the design, supply, installation, testing and commissioning of M&E works in relation to a project at Stanbridge Earls, Stanbridge Lane, Romsey.

From early 2021, the relationship between the parties deteriorated and both parties claimed to be entitled to terminate their various contracts. ProMep's position was that Henry repudiated the Stanbridge contract and that, on 20 July 2021, ProMep accepted that repudiation as terminating the contract. Henry disputed that it was in repudiatory breach and that ProMep was entitled to terminate and, therefore, alleged that ProMep was in repudiatory breach.

The Proposal and the CVA

By a proposal dated 7 October 2021, the directors of ProMep proposed that it enter a company voluntary arrangement (CVA). The proposal was approved in a slightly modified form and came into effect on 25 October 2021. Christopher Stevens and Philip Harris of FRP Advisory Trading Ltd. (“FRP”) were appointed as Supervisors of the CVA.

The Proposal stated that it was to be a composition in satisfaction of the Company's debts (clause 1.2) and that the proposals were to be read with Appendices A to F which formed part of the Proposal. Clause 1.5 provided:

“Standard terms of proposals are attached at Appendix E. These specific proposals are to be read with the standard terms of proposals, which form part of the proposals put to creditors. If there is any conflict between the proposals and the standard terms, these proposals shall prevail.

Section 2 was headed “Circumstances giving rise to the proposed CVA”. This section included a brief summary of ProMep's history with Henry and stated that, since 2018, ProMep had entered into a number of projects/ contracts with Henry. Clause 2.7 stated that ProMep had ultimately issued 7 day suspension notices on “all projects” because of non-payment but Henry had still not paid and had instead excluded ProMep from the sites. At paragraph 2.9 the Proposal recited that ProMep had issued 9 claims in adjudication against Henry with a combined value in the region of £1 million and that those claims were based on Henry's failure to pay its Payment Notices. Further details of the adjudications were included in Section 5, the last being commenced in September 2021.

Section 3 headed “What is the effect of a CVA?” included:

“3.2 In order for a CVA to become binding on creditors, it must be approved by 75% or more in value of creditors voting on the decision to accept or reject the CVA (in person or by proxy). If the Arrangement is approved, it will bind all creditors whether or not they received notice of the decision procedure and regardless of whether they voted for or against the CVA or did not vote at all. ….

3.3 A CVA will affect all creditors whose claims are not payable as expenses of the CVA. Typically, creditors will be required to write off and/or defer some part of their claim as part of the compromise where the monies received through the CVA are accepted in full and final settlement of the amount outstanding to the creditors. Once the CVA is approved creditors shall not be entitled to take any proceedings against the Company or its assets to enforce its debts.”

Section 5 was principally concerned with monies due to ProMep:

(i) Clauses 5.1 to 5.15 referred to the 9 adjudications which ProMep had commenced against Henry, summarising the background to the adjudications, setting out the amounts so far won in adjudication (£644,955), and setting out the amount paid (£115,000). Clause 5.7 stated that that amount received had been “ringfenced for the benefit of CVA creditors”.

(ii) Clauses 5.12 and 5.13 addressed the prospect of enforcement of the decisions:

“5.12 In a CVA there is a good prospect that the Court would order payment on an enforcement. However, in liquidation or administration there is virtually no possibility of payment as the likely outcome is a stay on payment pending final resolution in litigation.

5.13 For the purposes of the estimated outcome statement realisations in respect of the adjudications in a liquidation scenario have been estimated at 10% of the headline value. It is not considered likely that these claims would be capable of being pursued in liquidation due to protracted litigation and costs.”

(iii) Clause 5.15 provided that any adjudication monies received from 1 January 2022 onwards “will be excluded from the CVA”. That date was later modified.

(iv) Clauses 5.16 to 5.24 addressed retentions totalling £323,500. It was recorded that £57,000 had been received and was ringfenced for the benefit of C VA creditors. Again it was provided (clause 5.24) that any retention monies received after from 1 January 2022 “will be excluded from the CVA”.

(v) Clauses 5.25 to 5.28 dealt with refunds from HMRC and:

“5.26 At present the net realisation to the CVA is estimated to be £217k after set-off and it is intended that this refund is paid directly to the CVA upon receipt.

…

5.28 The HMRC refunds will be available to the CVA irrespective of the time it takes for the funds to be received by the Company and the CVA shall not conclude until the refunds have been collected.”

(vi) Clause 5.32 stated that the company intended to seek further work in the future. Then:

“5.33 For the avoidance of doubt, in the event the CVA is still active when the Company undertakes new contracts it is not proposed that any receipts received by the Company from 1 January 2022 onwards will be paid over to the CVA, with the exception of the HMRC refunds detailed in the proposals.

5.34 This is on the basis that any future activity undertaken from that date will be funded separately by the directors.

5.35 The trade-off for creditors is that the ongoing survival of the Company facilitates enforcement of the adjudications and allows it to maintain warranties/relationships with contractors, which is anticipated to maximise retention realisations.”

(vii) Clause 5.36 provided that the ring-fenced amounts would be paid over immediately to creditors upon the C VA being accepted by creditors.

(viii) The following clauses were also referred to in argument:

“5.43 It is anticipated that the period of the CVA will be up to 6 months, although may be extended at the discretion of the Joint Supervisors … in order to facilitate the agreement of creditor claims, distribution of funds to the creditors and the statutory requirements to finalise the CVA.

5.44 Any unexpected windfalls received by or becoming available to the

Company during the course of the CVA will be immediately advised by the Supervisors and will be included in the CVA to be available for Arrangement creditors.”

Section 7 was headed “The duties and responsibilities of the Supervisors:

(i) Under clause 7.1 their role included “(e) to determine whether any other assets form part of the CVA funds, and if so, arrange for their realisation accordingly”.

(ii) Clause 7.3 provided “In the event that any clauses under the CVA appear to be in conflict, unclear or ambiguous, the Supervisors will, at their absolute discretion, be entitled to resolve their priority, interpretation or application, acting in what they believe to be the interests of the creditors.”

Section 8 contained the “Statement of Affairs – comparative outcomes”:

(i) Clause 8.2 stated that professional valuers had carried out a desktop valuation of the Company's assets “being Computer Equipment and Motor Vehicles”.

(ii) Clause 8.3, which is central to the argument before me and before the adjudicator, was in the following terms:

“All of the Company's assets, other than the net proceeds of the HMRC refunds until such time as they are fully received and Retentions and Adjudication Funds received prior to 1 January 2022 which will form the voluntary contributions, are excluded from the Arrangement. The excluded assets will be utilised to deal with the successful implementation of the arrangement and potential future trading of the Company. For the avoidance of doubt this includes but is not limited to:

• Cash at bank

• Chattel assets

• Overdrawn directors' loan account

• Company Records

• Intellectual property rights

(iii) Clauses 8.4 and 8.5 provided:

“8.4 Appendix D provides a comparison of estimated outcomes between the CVA and the liquidation of the Company. It can be seen...