Business Rescue and the Subcontractor
Thursday, 27 September 2018
Posted by: Tasveera Singh
With the current recessionary climate prevailing in South Africa at present, a greater number of main contractors find themselves in a difficult financial position.
The main reasons for the problems facing contractors are:
• Lack of work
• Negative investor sentiment
The increasing number of contractors filing for Business Rescue in terms of the South African Companies Act that came into effect on the 1 May 2011, has seen a large proportion of our subcontractors being financially compromised.
Statistics shared at this year’s MBSA Congress stated that only 4% of construction companies that enter Business Rescue are able to trade successfully through Business Rescue and become financially stable.
As a subcontractor, what is the best course of action to take if the main contractor you are working for files for Business Rescue?
In taking a decision it must be kept in mind that the following raking is applied when payments are processed:
• Business Rescue Practitioner
• New creditors or subcontractors engaged after business rescue effective date
• Prior creditors and subcontractors
The approach to this problem differs if you are a N/S Subcontractor or a Domestic Subcontractor.
The N/S Subcontractor Agreement (JBCC PBA 5.0)allows for direct payment from the client to the N/S Subcontractor should the main contractor not pay the subcontractor as per the provisions of the Payment Certificate (Clause 35.1.2). Unfortunately, the JBCC PBA 6.1 does not have the same provision and only allows you to suspend the works (Clause 25.12.1) followed by termination (Clause 29.14.5).
The MBSA Domestic Subcontract (2008 Edition) makes provision for suspension of works for non-payment (Clause 38.1.6) followed by termination (Clause 38.3). The (2014 Edition) allows for suspension of works for non-payment (Clause 28.1.3) followed by termination (Clause 184.108.40.206).
Note: The correct procedure and notices in writing to the main contractor and principal agent in the case of the N/S Subcontractor Agreement must be followed by the subcontractor.
In conclusion, a subcontractor should not consider continuing with the works on site when the main contractor is in arrears with payments and has filed for Business Rescue. This could result in a terrible business decision where resources have been expended for no financial gain.
R.H. Stembridge | Building Services Manager