Client has gone into administration mid-contract. Options?

Hi all, just wondering if anyone has had similar experience to this before?

I will contact our solicitor if need be, but at the moment none of this is “official”.

I got a call yesterday from a worker at one of my client companies, he (and all the workforce) had been called into a meeting, told the company had gone into administration and all were sent home.

He called me to give me the heads up so we didn’t spend any more time on the project, (we still have not been officially told by the company that the they had called in the receivers, yet they have NO ONE working there at the moment, they were all sent home).

It’s a small industry, word travels fast, a few of our other clients got wind of it and also called us to warn us.

Our “clients client” is still not aware, as they are continuing to contact us with regard to the project, (and as they are not our direct client nor have we been officially told of the administration yet), I don’t feel it is my place to tell them, though I will if we receive no word by the end of this week.

We are owed a couple of grand from a previous outstanding invoice on a another project we completed for them, doubt we’ll see that. I feel very lucky though, as last year we were regularly invoicing $30-$40k per month to this client. It was always a headache getting the money out of them, but I’m obviously so glad we’re only outstanding a couple of grand! (We’re a small company. Only been trading 18 months so this could have ended very badly for us).

The current project is worth 200 hours of work to us, of which we are only 15 hours in, so I invoiced part payment of that yesterday to ensure it’s on the creditors list (as we still have not been officially told they are in administration) and we’re stopped work on their project just now.

My initial thoughts yesterday were that, as we’ve only just started the project, and the project needs to get finished one way or another, we could approach our clients client and transfer the project to them, rescind yesterday’s part invoice and port the whole project over. We have no material costs to cover, we’re a “service” so just wages for hours spent and overheads.


Last night though, it occurred to me that if the company is in administration, are we technically still contracted to them unless the administrators decide not to trade out of it and release us from the contract? I really don’t want to be beholden to 200 hours of work to a company that was difficult to get money out of in the first place, never mind now they are in administration. I also know that owe a LOT of money to other parties.

Similarly, can the administrators hold our clients client to their contract too? So essentially we’re all “business as usual” with the administrators unless they decide otherwise?

Thanks for any insight. I have been on the receiving end (as a worker) of 3 companies that gone into liquidation over the years, this is the first time it’s happened to us as my own company though.

Cheers.

 

Your contract with them should contain clauses for this sort of thing. Bankruptcy, death, acts of god, etc

 

Good point, I should probably go back and refresh my memory. I'll re-read our T&C's now.

 

Have you received notification from administrators as yet?
Given it seems all staff have been laid off, can you simply call a director of the company and ask what is happening?
It would make sense to simply continue the project directly for the client but that will open a legal problem For you depending on what the administrators want to do.
If it’s only a few grand, I’d just call a director directly to find out whether to stop working on the project. Don’t bother with solicitors because chasing the money is likely a pointless endeavor once you factor legal fees.

Every now and again in my business, there is an issue with payment from a client. I’ve never had an issue with liquidation but in my experience, chasing small amounts of money is a waste of mental energy and we just write it off. We do send it to debt collectors though so that the client gets harrassed for a while if they deserve it....

 

Well, that's some solicitor we had review out T&C's... nothing at all in there relating to bankruptcy, death, acts of god, etc. I'll get them amended for the next project.

What is in there though, which we never enforce as it's essentially impossible in this industry, is a clause that states payment in full required before we release our "end product". At least if it's a big administrator and they hold us to the constract we'll probably have more chance of getting money out of them more quickly that we used to have with this client anyway as we'll hold them to that clause.

 

No, no official word from anyone yet, administrators or the company.

I'm giving them until the end of the week to do the right thing and let us know.

You're dead right, I won't be wasting my time chasing the $2k owing from the previous project, my concern is being held to complete a $20k project that we've barely started for the administrator if they hold us to the contract.

If they're already in administration then it doesn't mater what the director says, it's up to the administrator.

For context, we're a structural steel drawing office, they are a fabricator, their client is the main contractor (builder). In this game the fabricator carries the lions share of the risk early on, they'll have to outlay massively for steel before they see a cent from the builder. My guess at the moment is that an administrator will not want to shell hundred of thousands of dollars in upfronts out for a new project that they wont see payment for for perhaps 2 years and is not guaranteed to turn a profit. On top of that, all the sub contractors would hold the administrator to strict payment terms under the circumstances. It's would take a specialist administrator with knowledge of the industry and deep pockets to want to trade this project out. That's before you factor in anything the company already owes on previous projects, (I know they owe an equipment hire company $100k for starters).

It'll be an interesting learning experience this one, gladly we're not talking serious money for us but having being on the receiving end of this in the passed I feel for their workers.

If nothing else it has highlighted some failings in our own T&C's I need to amend.

 

Does the “clients client” know that your company is doing the project? Do you have direct contacts with them?
If so, do you have a good enough relationship with them to have an unofficial conversation? It’s not in their interest or yours to stop the project so maybe you can work out a plan to keep the project running while the administrator resolves the other issues. Might be as simple as continuing the project unpaid and getting a final pay day from either the administrators or the “clients client”

 

This is our termination clause... probably not water tight but covers the bulk of what we would come across

Re your situation, I would stop work until you have instructions from the administrators

 

Yes, we're in direct contact and have worked for them in past with good relations. I will be calling them Friday if we have had no official work by then. I really would like to do the right thing by the client and give them and their administration team time to do it properly, we have a bit of time up our sleeve and I'd feel better not being propagator of whispers until I have to. It will only add more stress to the Director at the client, and although we're not exactly big mates, I can't imagine the stress he must be under right now, this will potentially ruin him and I know his family are involved in the financials of the company too.

 

@DaveM thanks for that! Much appreciated.

Yes, we've already stopped work, we have a bit of time up our sleeve on that project and we've plenty of other projects to keep us busy so it's not massive drama to us in the grand scheme of things.

 

Meh, cop the 2k on the chin. You lost much more than that from Mt Gox right? And that didn’t seem to phase you much!

 

Yeah, as I say @Foxdan I won't be chasing that too hard. I just don't want to be tied to a $20k contract we've barely started for the administrator, I'd rather get out of that and either let it go or novate it over to the builder. My concern is being held to complete a $20k job then have to fight for payment for that! That's 200 hours we can be working on jobs I know we'll get paid for.

Mt Gox was fairy money though, sure, I "lost" tens of thousands but they only cost me $400 to begin with, so I really only lost $400. I'd be a LOT more phased if I'd actually lost the tens of thousands ;-)

 

I doubt it’s worth administrators time to chase u complete a 20k project. Even if you did it, sounds like they don’t have any staff anyway to do whatever else is required. I’d just refuse to do any further work unless you receive a pre payment.
Or tell themselves you will start work again as soon as the Mt Gox server is back up

 

Man, I wish the Mt Gox server would come back up! I only missed getting my coins onto a paper wallet by one bloody day.... @Foxdan

 

As is the norm, the administrator will contact you in due course. The administrator will advise whether or not your work is to be completed, if it is they take on the obligation to pay for the work. They should also advise when you'll need to lodge claims.

If the company has no ability to complete the works, the shop drawings are valueless as another fabricator may take over the project and start from scratch.